Veralto Corporation (VLTO)

Conclusion

Veralto Corporation sells water analytics and treatment technologies, along with marking, coding, packaging design and color management solutions, to industrial, municipal and consumer customers. At a price of 118.06 USD on 2026-11-09, its market capitalisation is 28.71 billion USD.

The verdict is overvalued. Today's price-to-earnings ratio is 28.6, EV/EBITDA is 21.7 and price to free cash flow is 26.3. The price history is too short to compare these with long-term medians. The DCF gives 84.27 USD per share at a discount rate of 8.9%. The fair value band runs from 67.41 to 101.12 USD, with a margin of safety of -28.6% at the current price. The reverse DCF implies growth of 9.9% a year, while revenue grew 4.8% a year over five years and free cash flow per share grew only 0.7% a year.

What supports the case is a return on invested capital of 23.3% against a WACC of 8.4%, interest coverage of 13.2x and free cash flow conversion of 109.1% on a trailing basis. What could break it is the gap between the 9.9% growth the price implies and the 4.8% revenue growth actually delivered, the weak five-year growth in free cash flow per share, and the fact that 56.9% of the DCF value sits in the terminal value.

Financial health

Financial strength is green, supported by an Altman Z-score of 5.3, net debt to EBITDA of 0.8x, interest coverage of 13.2x and a current ratio of 2.03. The quick ratio is 1.65 and debt to equity is 0.90. The Altman zone is safe, although that model was designed for manufacturers, so the zone is a rough guide here. Insolvency risk: low, about 0.6% by the estimate of the Ohlson model over one to two years. The balance sheet gives no sign of short-term stress.

Earnings quality

Earnings quality is green. Free cash flow conversion is 109.1% on a trailing basis and 102.4% over five years, and accruals are -1.9%, which means cash earnings run ahead of reported earnings. Stock-based compensation is 1.3% of revenue, leaving free cash flow after it at 1.02 billion USD. The share count has risen by 0.3% a year over five years, so there are no meaningful buybacks. The Piotroski score is 5 of 9. The Beneish M-score is not available. The company beat earnings estimates in all 8 of the last quarters, with an average surprise of 7.0%. Estimates for the current year rose 2.7% over 90 days, and estimates for next year rose 2.2%.

Profitability

Profitability is green. The gross margin is 60.2% against a median of 57.8%, the operating margin is 21.8% against a median of 22.8%, and the net margin is 17.3% against a median of 16.9%. Operating margin has moved little, with a stability measure of 2.3%. ROIC is 23.3% against a WACC of 8.4%, and the given ROIC minus WACC value is 14.9%. Return on equity is 31.0%. The DuPont split shows a net margin of 17.1%, asset turnover of 0.72 and an equity multiplier of 2.48, so leverage contributes a large part of the equity return.

Growth

Growth is green, but the underlying rates are moderate. Revenue compounded at 4.2% over three years and 4.8% over five. Earnings per share compounded at 3.0% over three years and 5.0% over five. Free cash flow per share compounded at 6.1% over three years but only 0.7% over five. Revenue grew in all 5 of the last 5 years. Next year's earnings estimate growth stands at 8.2%, which is above the historical rates.

Valuation

Valuation is red. The verdict is overvalued, with a margin of safety of -28.6%. The price-to-earnings ratio is 28.6, EV/EBITDA is 21.7, price to free cash flow is 26.3, price to sales is 4.9 and price to book is 8.9. Historical medians for these multiples are not available because the price history is too short. The DCF gives 84.27 USD per share at a discount rate of 8.9%, with 6.5% growth for the first stage and 2.5% in the terminal stage. The fair value band is 67.41 to 101.12 USD. The DCF is an order of magnitude built on fixed assumptions, not a price target. The reverse DCF implies 9.9% growth. The dividend yield is 0.4%, and the payout on free cash flow is 11.3%.

Risks

The main risk is that growth falls short of what the price implies. The reverse DCF requires 9.9% growth, against 4.8% revenue growth over five years and 0.7% growth in free cash flow per share. A slowdown in those rates would weigh on the valuation more than on the balance sheet. Because 56.9% of the DCF value sits in the terminal value, small changes in the discount rate or terminal growth assumptions would move the result considerably. The Beneish M-score is not available, so the screen for earnings manipulation is incomplete. The analysis also has limits: it has no debt maturity schedule and no revenue split by segment, so refinancing risk and the mix between the two business lines cannot be assessed.