Mettler-Toledo Earnings: Solid Results and Recent Cash Flows Push Up Fair Value

Narrow-moat Mettler-Toledo MTD delivered solid first-quarter results. Management’s guidance change for 2023 was minimal and looks in line with what we are already expecting for 2023. However, based on cash flows generated since our last valuation change, we are slightly increasing our fair value estimate to $880 per share from $830 previously. However, we continue to see shares as significantly overvalued.

In the quarter, Mettler’s business looked steadier than many of its life science peers, probably because demand for its products did not spike as high as some life science players that were more focused on COVID-19-related products. In constant currency, sales grew 7% year over year, including growth in Mettler’s lab, industrial, and food retail businesses of 5%, 7%, and 36%, respectively. While management highlighted the challenging operating environment, it continues to execute well on its internal programs to boost sales above market levels in its targeted end markets, increase margins through productivity initiatives, and boost recurring services revenues faster than its overall revenue growth. With margin expansion year over year and continued share repurchases, Mettler’s adjusted EPS grew 10% year over year.

For 2023, Mettler is still aiming for 5% sales growth (in constant currency) and increased the bottom end of its guidance range for adjusted EPS by a dime to $43.65 to $43.95, which is already in line with our projections for the full year. While economic or industry-related uncertainty may eventually challenge the company, Mettler’s results stand out positively in an industry that is resetting after the pandemic boom years. Including these solid results and cash flows generated since our last valuation change, we have raised our fair value estimate by 5%. Shares continue to trade well above our new fair value estimate, though.