Veralto is essentially a global industrial technology company that spinned-off from Danaher. It became an independent, publicly traded company in late 2023.
**What they do**
The company operates through two main pillars. The first is **Water Quality**, where they provide the precision instruments, chemicals, and software used to test and treat water. If a city needs to ensure its drinking water is safe, or a factory needs to treat its wastewater before pumping it back into a river, they likely use Veralto brands like Hach or Trojan Technologies.
The second pillar is **Product Quality & Innovation**. This side of the business is responsible for the "source-to-shelf" lifecycle of consumer goods. They handle everything from the digital design and color management of packaging (through brands like Pantone and X-Rite) to the actual coding and marking you see on products—like the expiration date printed on a carton of milk or the barcode on a medicine bottle (Videojet).
**Target Markets**
Their target audience is split between the public and private sectors. They serve thousands of municipal water authorities around the world, but they also partner with the giants of the private sector, specifically in the food and beverage, pharmaceutical, and consumer packaged goods (CPG) industries. Effectively, if a company makes a physical product that needs to be safe, branded, and tracked, they are a target for Veralto.
To me, what makes Veralto stand out is how they specialise in mission-critical and recession proof resources like water, food, and medicine.
About 60% of their revenue is recurring. Once a city installs a Veralto water testing system, they have to keep buying the proprietary chemicals and sensors to keep it running. This creates a very steady, predictable stream of cash.
Veralto has a culture of continuous improvement inherited from Danaher. This allows them to take steady businesses and make them incredibly efficient and profitable over time.
Finally, and what made me start looking at them, they are positioned to profit from massive global problems that aren't going away, such as water scarcity, increasing government regulations on pollution, and the need for more transparent food supply chains.
**Competition**
But I also realise that it is a tough business, they have quite big names as competitors (although their last annual report don't identify them as direct competitors since they pride themselves to be quite specialised): Like Xylem, Ecolab, Thermo Fisher or Badger Meter.
So they instead stay in a high-margin "brains" of the operation (the sensors and chemicals), which puts them in a niche where they are often competing more on technical accuracy and long-term service contracts than just the lowest hardware price. They are much mor capital light.
**Some numbers**
Water quality segment (60% of the business) has around 60% recurring revenues while the product and innovation segment has around 65% recurring revenues.
Solid balancesheet with good cash conversion with OCF/net income of 1.15x over a full year, CapEx at 1.1% of revenue, and FCF conversion above 100% for two consecutive years.
Valuation: At 91.5$ a share, it is fairly valued - on the expensive side - if we have basic assumptions of a base 7% growth and 3.5% terminal. Analyst consensus target 108$.
For now, I have a price target alert under 82 to aim forward PE under 20 and P/FCF under 20.
They'll release their quarter report soon (i don't have it at hand while writing - but it is either tomorrow or wednesday).
I'll do a proper analysis - more rigurous - at that moment. For now, I just landed on it and wanted to have your opinion. These kind of businesses were always darlings of mine (I also have Ecolab on my watchlist - and had Badger Meter but haven't come back to it for a while)