Waters Corporation (Ticker: WAT) is a company that provides advanced tools and services for scientific analysis and diagnostics, primarily serving the pharmaceutical, biotechnology, industrial, academic, and government sectors. They essentially equip laboratories with the sophisticated instruments, software, and consumable materials needed to research, develop, and test various products, from new medicines to food safety.

In early 2026, Waters significantly expanded its business by acquiring the Biosciences and Diagnostic Solutions businesses from Becton, Dickinson and Company (BD). This acquisition broadened their reach into specialty diagnostics and high-volume clinical testing, adding new divisions like Biosciences and Advanced Diagnostics alongside their existing Analytical Sciences and Materials Sciences segments.

1. The Business Model (How They Make Money)

Waters Corporation makes money by selling a combination of high-tech instruments, specialized software, and recurring consumables, along with providing essential services like maintenance and support. Their core economic engine is built on enabling scientific discovery and quality control across various industries.

• Instrument Systems: They sell complex machines like liquid chromatography (LC) and mass spectrometry (MS) systems, which are used to separate, identify, and quantify chemical compounds in samples. These are high-value, foundational tools for many labs.
• Chemistry Consumables: A significant portion of their revenue comes from the ongoing sale of "consumables" – things like separation columns and reagents that are used up during experiments and need to be regularly replaced. This creates a steady, recurring revenue stream.
• Service and Support: Waters also generates revenue from maintaining and servicing their instruments, ensuring they operate correctly and efficiently for customers.
• Software: They develop and sell specialized software, such as their Empower software, which is critical for controlling instruments, collecting data, and analyzing results.

In fiscal year 2025, Waters reported total GAAP revenue of $6.4 billion. Their revenue breakdown by customer in 2025 showed that the pharmaceutical sector was their largest customer, contributing $1.87 billion, or 59.2% of their total business. Industrial customers accounted for $961.15 million (30.4%), and Academic & Government customers made up $330.77 million (10.4%).

More recently, for the second quarter of 2026, Waters reported total revenue of $1.645 billion. This was split between $828 million from their original Waters businesses (organic revenue) and $817 million from the newly acquired Biosciences and Diagnostic Solutions businesses.

2. The Metrics That Matter Most

For Waters Corporation, given their business model of selling high-value scientific tools and services, the following performance metrics are particularly important:

• Revenue: This metric simply tells you the total amount of money the company brings in from selling its products and services. For Waters, tracking revenue is crucial because it shows the overall demand for their scientific instruments, consumables, and services. With their recent large acquisition, monitoring revenue growth, especially the split between organic (existing business) and acquired revenue, helps investors understand how well the new businesses are integrating and contributing to the company's overall expansion. In the second quarter of 2026, Waters reported total revenue of $1.645 billion.

• Gross Margin: Gross margin shows how much money Waters keeps from each sale after covering the direct costs of making their products or providing their services. For a company selling complex instruments and specialized consumables, a healthy gross margin indicates strong pricing power and efficient manufacturing. It's a key indicator of the profitability of their core offerings before other operating expenses are considered. Waters reported a total company adjusted gross margin of 54% in the second quarter of 2026.

• R&D Expenses (Research & Development Expenses): This metric represents the money Waters spends on inventing new products, improving existing ones, and exploring new scientific applications. In the fast-evolving world of scientific instruments and diagnostics, continuous innovation is vital to stay competitive. High R&D expenses, when effective, can lead to new, high-margin products that drive future revenue growth. For fiscal year 2025, Waters reported research and development expenses of $195.711 million.

• Free Cash Flow: Free cash flow is the cash a company generates from its operations after paying for capital expenditures (like buying new equipment or upgrading facilities). It's essentially the cash left over that can be used for things like paying down debt, making acquisitions, or returning money to shareholders. For Waters, especially after a significant acquisition that likely involved debt, strong free cash flow is critical for financial flexibility and future investments. Waters reported an adjusted free cash flow of $202 million in the second quarter of 2026.

• Adjusted EPS (Adjusted Earnings Per Share): Earnings per share (EPS) tells you how much profit the company made for each outstanding share of stock. "Adjusted" EPS often removes one-time events or non-cash charges that might make the regular (GAAP) EPS look misleading. For Waters, especially after their recent acquisition which led to a GAAP diluted loss per share due to accounting charges, adjusted EPS provides a clearer picture of the company's ongoing operational profitability and how much profit is attributable to each share. Waters reported an adjusted EPS of $3.05 for the second quarter of 2026, up from $2.95 in the second quarter of 2025.

3. How to Value This Company

The most relevant valuation metric for Waters Corporation is EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization).

Here's why:

• What it is: EV/EBITDA compares the total value of the company (its "Enterprise Value," which includes both its stock market value and its debt, minus cash) to its operating earnings before accounting for interest payments, taxes, and non-cash expenses like depreciation and amortization.
• Why it's best for Waters:
  • Acquisition Impact: Waters recently made a large acquisition, which likely involved taking on more debt and resulted in significant non-cash amortization charges that impacted their reported GAAP net income and EPS. EV/EBITDA helps to "normalize" these effects by looking at the company's operating performance before these items.
  • Capital Structure Neutral: Because it includes debt in the Enterprise Value and excludes interest expenses from EBITDA, this metric is good for comparing Waters to other companies in its industry, even if those companies have different amounts of debt or different tax situations.
  • Focus on Core Operations: EBITDA focuses on the cash-generating ability of the company's core business operations, which is crucial for a capital-intensive business like manufacturing scientific instruments.

To use it, you would compare Waters' EV/EBITDA ratio to that of its competitors or its own historical average. If Waters' EV/EBITDA is lower than its peers or its historical average, it might suggest the stock is "cheap" or undervalued. If it's higher, it might suggest it's "expensive" or overvalued. For the trailing twelve months to June 30, 2026, Waters Corporation's EBITDA was $942.8 million, and for fiscal year 2025, it was $1.0 billion.