Agilent Aces Latest Test

8/22/2011


  Recent Price
$37
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
13
  Shares (millions)
357
  Long-Term Debt as % of Capital
35.1%
  52-Week Price Range
$55.33 - $26.68

Agilent Technologies ($37; A) posted strong July-quarter results amid a challenging environment for life-sciences and testing and measuring devices. Per-share profits jumped 43% on a 22% revenue increase, with double-digit sales gains in all three segments. Sales and cash provided by operations rose for a seventh consecutive quarter.

Agilent's presence in emerging markets such as China, Brazil, India, and Russia should help sustain near-term growth. Yet the shares have fallen 33% from a 10-year high set in May and now trade at 13 times trailing earnings, nearly 50% below the five-year average. Shares also trade at steep discounts to their five-year averages based on ratios for price/sales (12% discount) and price/cash flow (35% discount).

Wall Street analysts project per-share profits will climb at an annual rate of 23% over the next five years. While that seems optimistic, expectations for growth of 44% for fiscal 2011 ending October and 14% for fiscal 2012 appear reasonable. At 13 times expected fiscal 2011 earnings, Agilent trades at a discount to the life-science-equipment group and the electronic-equipment group. Agilent is a Focus List Buy and a Long-Term Buy.

Business breakdown

Straddling technology and health care, Agilent's diversified business mix should help steady the company against weakness in any single area. Aerospace and defense, accounting for 11% of revenue, could suffer from Pentagon budget cuts. But Agilent sells into eight different end markets, with not one accounting for more than one-quarter of revenue. In the last seven years, Agilent has consistently reinvested 11% to 14% of revenue in research and development.

The high-margin electronic-measurement unit (50% of revenue for the 12 months ended July) makes measuring instruments and systems used in both electronic equipment and microscopy products. The segment is leveraged to semiconductors and wireless gear used in personal computers and smart phones. Agilent expects this market to expand at a 4% to 5% annual rate.

Life sciences (27%) products are used by drug companies and academic researchers. Agilent values the global life-sciences market at $19 billion and expects it to expand at an annual rate of 5% to 7%, helped by rising demand for generic drugs and growth in developing economies.

The chemical-analysis (23%) unit supplies instruments and software used to test air, water, soil, and food. Agilent projects this $10 billion market will expand at an annual rate of 5% to 6% on continued growth in China and demand for food-safety and environmental regulations in China and other emerging markets.

Forward guidance

For the October quarter, Agilent gave midpoints of $0.80 per share for earnings, implying growth of 23%, on revenue of $1.75 billion, up 11%. At the time of the announcement, the consensus had called for per-share profits of $0.81 on revenue of $1.76 billion. An annual report for Agilent Technologies Inc. is available at 5301 Stevens Creek Blvd., Santa Clara, CA 94306; (877) 424-4536; www.agilent.com.

AGILENT TECHNOLOGIES
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jul '11
0.77
vs.
0.54
+ 22%
55.33
-
41.29
20 - 15
Apr '11
0.74
vs.
0.43
+ 32%
50.68
-
39.94
20 - 16
Jan '11
0.60
vs.
0.38
+ 26%
44.45
-
34.38
20 - 15
Oct '10
0.65
vs.
0.31
+ 36%
35.33
-
26.68
18 - 13
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
1.98
0.00
38.24
-
18.75
19 - 9
2007
5.42
1.61
0.00
40.42
-
30.26
25 - 19
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
96
78
89
69
73
26

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


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