VLTO Veralto
Regulated razor-and-blade compounder; wonderful business, but price already demands ~8% growth, so fair at best.
The business
Veralto, spun out of Danaher in 2023, sells water quality instruments and treatment chemistries (Hach, Trojan UV, ChemTreat) along with product identification gear (Videojet coding/marking, Esko packaging software, X-Rite color). About 60% of revenue is recurring: reagents, consumables, service and software sold into an installed base of instruments and printers, so the model works like razor and blades.
Quality gate · 90/100
Moat & management
| Moat | wide moat |
| Source | switching costs |
| Trajectory | stable |
| Management | excellent |
Instruments are embedded in regulatory compliance workflows such as EPA methods and FDA/food traceability, so switching means requalifying and taking compliance risk. That protects consumables pricing, and the cost is small next to what failure would cost the customer. Videojet's installed base and Hach's methods leadership give it scale advantages, and the Danaher Business System keeps margins disciplined.
Management came out of Danaher, so they bring DBS discipline: FCF conversion above 100%, low leverage and minimal dilution. The large cash pile is the open question; bolt-on M&A at Danaher-style returns would add value, while a pricey large deal is the main risk.
Owner-earnings inputs
| Owner earnings (TTM) | 1.02B |
| Owner-earnings yield | 4.5% |
| Free-cash-flow yield | 4.6% |
| Growth used (normalized) | 7.5% |
| Market-implied growth (reverse DCF) | 7.6% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 9.0% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 1.10B | 7.5% | 1.01B |
| 2 | 1.18B | 7.2% | 994.00M |
| 3 | 1.26B | 6.9% | 974.46M |
| 4 | 1.34B | 6.5% | 952.43M |
| 5 | 1.43B | 6.2% | 928.09M |
| 6 | 1.51B | 5.9% | 901.63M |
| 7 | 1.60B | 5.6% | 873.27M |
| 8 | 1.68B | 5.2% | 843.23M |
| 9 | 1.76B | 4.9% | 811.73M |
| 10 | 1.84B | 4.6% | 779.02M |
| 11 | 1.92B | 4.3% | 745.32M |
| 12 | 2.00B | 4.0% | 710.89M |
| 13 | 2.07B | 3.6% | 675.95M |
| 14 | 2.14B | 3.3% | 640.74M |
| 15 | 2.21B | 3.0% | 605.47M |
Key risks
- Slow organic growth in mid-single digits; PQI is exposed to industrial and consumer packaging cycles
- Large acquisition overpayment as idle cash pressures management to deploy
- Municipal water budget pressure or regulatory delays (PFAS rules) slowing water-quality demand
Catalysts
- PFAS and water reuse regulation driving testing and treatment demand
- Accretive bolt-on M&A using about $2B cash plus pricing and margin expansion via DBS
Recent news
score · 8 articles
- Q2 Earnings Outperformers: Veralto (NYSE:VLTO) And The Rest Of The Environmental and Facilities Services Stocks
- VLTO Stock Rises 13.2% in Three Months: Here's What You Should Know
- 2 Reasons to Sell VLTO and 1 Stock to Buy Instead
- CLH Shares Rise 10.4% in 6 Months: Here's What You Should Know
- 1 Mid-Cap Stock on Our Buy List and 2 We Avoid
- Veralto (VLTO) Climate Targets Win SBTi Validation
- 1 of Wall Street’s Favorite Stocks on Our Watchlist and 2 Facing Challenges
- Veralto Stock: Is VLTO Underperforming the Industrial Sector?
⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~8%/yr owner-earnings growth over 15y (reverse DCF); model credits 8%.