Waters Shares Up 37% So Far In 2017; Deutsche Bank Downgrades To Hold

Waters' stock has outperformed the S&P 500 Tools sector index by around 7 percentage points as the company impressed the Street with upward earnings revisions, the analyst noted. But now the stock is trading at a forward EBITDA multiple of 17x, up from 13x at the start of 2017, a premium that can no longer be justified unless there is clear visibility on margin expansion opportunities or a new product cycle to boost top-line growth.

In fact, the analyst's estimates through 2019 for inferior margin growth implies the company is heavily dependent on sales volume and capital deployment to expand its earnings per share.

Also, Waters isn't expected to introduce any new product cycles until the bottom half of 2018, suggesting there aren't any notable "needle-movers" that could generate growth for the next year.

Finally, the increase in Leonard's price target merely reflects an expansion in the peer multiple and a six-month roll-forward of his valuation period.