Don't Underestimate The Power Of Agilent

3/5/2012


  Recent Price
$44
  Dividend
$0.40
  Yield
0.9%
  P/E Ratio
14
  Shares (millions2
352
  Long-Term Debts as % of Capital
30%
  52-Week Price Range
$55.33 - $28.67

Agilent Technologies ($44; A) has rallied 25% this year, recovering about half of the ground the shares lost in the second half of 2011. Despite the rebound, Agilent remains attractively valued at 14 times trailing earnings, a discount of 43% to its three-year average price/earnings ratio. Agilent also looks cheap relative to historical norms based on price/cash flow and enterprise ratios.

That valuation reflects lackluster expectations for Agilent in the near term. In the wake of disappointing profit guidance in February, the consensus projects flat per-share profits in the April quarter. The consensus growth target for the year ending October 2012 remained steady at 8% despite a decline in the April-quarter estimate, as the company expects business to strengthen in the second half of the fiscal year.

Agilent is a Focus List Buy and a Long-Term Buy.

What Agilent does

Agilent, officially classified as a health-care stock, could just as easily qualify as technology. The company sells electronic-measurement instruments and systems (50% of revenue and 58% of operating profits in the fiscal year ended October 2011) that assist in the design and manufacturing of electronic equipment and components. Key end markets include semiconductors, computers, and electronics for aerospace and defense.

Life-sciences instruments (27%, 18%) are used for the development and manufacturing of drugs. This unit sells mostly to pharmaceutical and biotech companies but also does business with academic and government researchers. Agilent's chemical-analysis products (23%, 24%) target a variety of end markets, including petrochemicals, forensics, bioagriculture, and food safety.

Agilent has exposure to markets both cyclical and noncyclical, as well as a broad international footprint. In fiscal 2011 Agilent generated 63% of revenue overseas, with an expanding presence in emerging markets. This business mix has helped deliver solid growth. Over the last five years, Agilent has grown per-share profits at an annualized rate of 24%.

A steady stream of new products has also contributed to that growth. Over the last five years, Agilent spent an average of 12% of its revenue on research and development.

Looking ahead

The consensus projects per-share-profit growth of 8% in the fiscal year ending October 2012 and another 10% in fiscal 2013. This slowdown from the 37% growth Agilent managed over the last 12 months reflects concerns about Agilent's exposure to cyclical businesses like semiconductors. But continued economic improvement in the U.S. and overseas should render consensus targets conservative.

Going forward, Agilent intends to share more of its robust cash flow with investors. In January, Agilent initiated a dividend, with the first quarterly installment of $0.10 to be paid April 25. The company also intends to continue a stock-buyback program that has reduced the share count by 16% over the last five years. An annual report for Agilent Technologies Inc. can be obtained at 5301 Stevens Creek Blvd., Santa Clara, CA 95051, (408) 553-7777; www.agilent.com.

AGILENT TECHNOLOGIES
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jan '12
0.69
vs.
0.60
+7%
44.85
-
32.51
15 - 11
Oct '11
0.84
vs.
0.65
+ 9%
42.78
-
28.67
15 - 10
Jul '11
0.77
vs.
0.54
+ 21%
55.33
-
41.29
22 - 16
Apr '11
0.74
vs.
0.43
+ 32%
50.68
-
39.94
23 - 18
           
Year
(Oct.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
6.63
3.86
0.00
55.33
-
28.67
14 - 7
2010
5.46
1.77
0.00
37.43
-
24.69
21 - 14
2009
4.48
(0.09)
0.00
29.38
-
12.02
NM
2008
5.77
1.87
0.00
38.24
-
18.75
20 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
95
65
77
89
66
67
78

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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