Veralto (VLTO)
Industrial / Instrumentación científica
Veralto combines two quality instrumentation businesses —water and marking/packaging— with an installed-base model where roughly 61% of sales are recurring (reagents, ink, spare parts, service and software); return on capital runs around 25%, well above the 10% bar, sustained by decades-old brands and operational switching costs, with mid-single-digit organic growth and a bolt-on acquisition engine funded with its own cash.
- Price
- $98.30
- Intrinsic value (5y, base)
- $124
- Total annual return (5y)
- 5.3%
- Status (nominal)
- Fairly valued
- Margin of safety
- +4%
The essentials
- Spin-off from Danaher (September 2023) with two segments: Water Quality (~60% of sales) and Product Quality & Innovation (~40%), both capital-light and high-margin.
- Recurring sales of consumables, spare parts, service and software account for ~61% of 2025 sales, on an installed base of instruments with high switching costs.
- FY2026 guidance raised to 4.0-4.5% organic sales growth and adjusted EPS of US$4.35-4.43, with acceleration expected in the second half to 5-6%.
- ROIC around 25% on the real invested capital from the balance sheet, exceptional quality per the 10% bar; moderate debt (~US$2.7 billion) and a recent, growing dividend.
Intrinsic value — two valuation methods
Total return at 5 years: 5.4%/year = 4.8% appreciation + 0.6% dividend. The target price ($124) is ex-dividend; the $3 in dividends collected over 5 years are added separately.
By both methods, the value today (DCF $112 · Multiples $103) exceeds the market price ($98).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $98 trades ~4.1% below its value discounted to today (~$103); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($124) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$64.
Thesis
The business
Quality scientific instrumentation with ~61% recurring sales, return on capital of approximately 25% —well above the 10% bar— and a moat built on operational switching costs, brand and presence in regulated industries. Growth combines mid-single-digit organic expansion with a systematic bolt-on acquisition engine.
The valuation
Valued on EV/EBIT, the correct metric for a capital-light industrial with no captive financing business of its own. The base case projects the revenue path anchored on the company's raised guidance (4.0-4.5% organic growth for 2026, accelerating to 5-6% in the second half) with an exit multiple within the industrial archetype band. The 5-year value emerges from 20× today compressing as the metric grows, with an estimated return of +5%.
The margin of safety
It trades close to intrinsic value, far from the required margin of safety. At market price the total expected return over 5 years is +5%, with the dividend contributing a smaller, growing share of the total return. The current verdict is Fairly valued.
What to watch
The central disconfirmer is whether the growth acceleration guided for the second half of 2026 —particularly in Product Quality & Innovation, supported by adoption of digital workflow solutions— materializes, and whether the pace of bolt-on acquisitions holds without paying rising purchase multiples. A stumble on either front would compress terminal growth and, with it, the justified exit multiple.
Educational / informational. Does not constitute investment advice.