Agilent Passes Recovery Test

1/3/2011


  Recent Price
$42
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
21
  Shares (millions)
352
  Long-Term Debt as % of Capital
40%
  52-Week Price Range
$42.08 - $26.68

Agilent Technologies' ($42; A) optical mouse sensor hurried the demise of the mouse pad. But Agilent is best known for measurement instruments that help technology companies build the newest gadgets, drugmakers formulate new products, and governments test such things as soil and water quality. Spun off from Hewlett-Packard ($42; HPQ) in 1999, Agilent has exposure to robust growth markets, including smart phones and China.

Sales growth accelerated in each of the last four quarters. For fiscal 2010 ended October, revenue rose 22% to $5.46 billion, recovering from a 22% contraction in fiscal 2009. Asia drove much of Agilent's growth in fiscal 2010, while the May acquisition of scientific instrumentation maker Varian for $1.5 billion also boosted the top line. The U.S. accounted for 32% of revenue in fiscal 2010, followed by China (14%) and Japan (10%). Most of the remainder comes from Southeast Asia and Europe.

Strong trends in operating momentum and earnings estimates contribute to a Quadrix® Overall score of 96. Agilent is a Buy and a Long-Term Buy.

Business breakdown

The electronic-measurement segment (51% of fiscal 2010 revenue) makes instruments that design and test semiconductors, smart phones, and consumer electronics. Segment revenue advanced 15% in fiscal 2010. The business also sells to the aerospace and defense industry, and it stands to benefit from U.S. efforts to improve information management.

Life sciences (27%) products are used in clinical trials for pharmaceutical and biotech companies, as well as for academic and industrial research. The segment's sales grew 21% in fiscal 2010. Excluding acquisitions and divestitures, revenue climbed 14% on broad growth across drug and biotech, academic, government, and food markets. New products should continue to propel revenue higher.

The chemical-analysis division (22%) supplies instruments and software used to examine the biological and physical properties of substances. Construction projects, spurred by U.S. stimulus funds, have increased testing of the air, water, and soil. Meanwhile, China's government continues to invest in environmental protection, particularly to improve the quality of drinking water. Agilent products are also used to test the safety of food and drugs. The division's sales surged 42% in fiscal 2010, or 15% excluding the Varian acquisition.

Conclusion

The stock's valuation is not particularly compelling. Shares trade at 21 times trailing earnings, 11% below the three-year average, but command a premium based on sales, operating cash flow, and book value. However, investors seem willing to pay a bit extra for the stock, given recent results and expectations of favorable business trends extending into fiscal 2011.

The backlog, which typically represents three months of revenue, jumped 38% to more than $1.4 billion in fiscal 2010, reflecting growth in all three segments. For fiscal 2011, Wall Street sees per-share profits of $2.47, up 24%, on 15% higher revenue. An annual report for Agilent Technologies Inc. is available at 5301 Stevens Creek Blvd., Santa Clara, CA 95051; (408) 345-8886; www.agilent.com.

AGILENT TECHNOLOGIES
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Oct '10
0.65
vs.
0.32
+ 36%
35.33
-
26.68
21 - 16
Jul '10
0.54
vs.
0.15
+ 32%
36.89
-
26.74
29 - 21
Apr '10
0.43
vs.
0.13
+ 16%
37.43
-
28.13
38 - 29
Jan '10
0.38
vs.
0.20
+ 4%
31.77
-
24.69
40 - 31
Year
(Oct.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
5.46
2.00
0.00
37.43
-
24.69
19 - 12
2009
4.48
0.80
0.00
29.38
-
12.02
37 - 15
2008
5.77
1.87
0.00
38.24
-
18.75
20 -10
2007
5.42
1.50
0.00
40.42
-
30.26
27 - 20
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
96
58
92
62
87
74

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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