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Agilent Has Focused on Several Strategic Actions

March 20, 2014 | About:

Agilent Technologies (A) is a measurement company providing bio-analytical and electronic measurement solutions to the life sciences, diagnostics and genomics, chemical analysis, communications and electronics industries.

Acquisitions Well-Managed

In May 2010, it acquired scientific instruments maker Varian for $1.5 billion in cash, or $52 per share. Varian is a leading supplier of scientific instruments and vacuum technologies for life science, environmental, energy and applied research and other applications. The goal is to convert Agilent into one of the largest bio-analytical measurement companies.

In June 2012 it acquired Denmark-based Dako for $2.2 billion, the largest deal in Agilent's history. Dako provides antibodies, reagents, scientific instruments and software primarily to pathology laboratories for cancer diagnostics. The deal is intended to augment Agilent´s portfolio.

China

Agilent began to focus its expansion efforts on China because getting a strong market position and customer relationships are long-term drivers. This country continues to be a major growth driver as government investments to upgrade lab capabilities and capacities remain strong. With the Chinese government recently tightening its controls over food safety, Agilent could have an additional growth opportunity.

The Life Science Tools Market

This market has shown growth over the last couple of years and is currently valued at more than $42 billion. It is projected to increase at compound annual growth rate (CAGR) of 13.6% to reach approximately $81 billion in 2016, which constitutes opportunities for Agilent.

Company's Dividend

Looking at the financials, the company has a strong balance sheet: good cash that allows it to reward current shareholders through dividend and share repurchases. Dividend-payment history affirms its commitment to maximize shareholder wealth. The company raised its quarterly dividend to $0.12 per share from $0.10. Furthermore, the board has raised the share repurchase authorization by up to $500 million.

Analyst Recommendation

The firm is currently Zacks Rank # 3 - Hold, and it also has a longer-term recommendation of “Neutral.” For investors looking for a better Zacks Rank there are no options, because the peer group have a worst rank.

Relative Valuation

In terms of valuation, the stock sells at a trailing P/E of 19.38x, trading at a discount compared to an average of 23.7x for the industry. To use another metric, its price-to-book ratio of 3.46x is the same as the industry average.

ROE Comparison

Let´s see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has decreased from the same quarter one year prior, showing a clear sign of weakness within the company. Let´s compare the current ratio with competitors in the next table:

Ticker

CompanyName

ROE (%)

AME

Ametek, Inc.

16.49

CGNX

Cognex Corporation

11.43

ITRI

Itron Inc.

-17.17

NATI

National Instruments Corporation

7.87

A

Agilent

13.7

As we can see, the firm ratio is higher than the ones shown by Cognex Corporation (CGNX), Itron Inc. (ITRI) and National Instruments Corporation (NATI). For those investors looking for a higher ratio, Ametek Inc. (AME) could be an option.

Final Comment

As outlined in this article, Agilent went through a series of acquisitions in an effort to expand its presence. The focus is also on international markets like China, where the firm faces new opportunities due to government laws. Moreover, the life science tools markets will expand the customer base in the future. Finally, turning our attention to the company´s numbers, the earnings per share (EPS) increased by 13.7% in the most recent quarter compared to the same quarter a year ago (from $0.51 to $0.58) and the increased dividends makes the stock more attractive for investors.

In conclusion, I believe it’s a good bet for a long-term investor. Hedge fund gurus have also been active in the company in fourth quarter 2013. John Hussman (Trades, Portfolio) has invested in it.

Disclosure: Damian Illia holds no position in any stocks mentioned.

About the author:

Damian Illia
A fundamental analyst at Lonetreeanalytics.com constantly looking for value and income investments.

Visit Damian Illia's Website


Rating: 5.0/5 (3 votes)

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Comments

batbeer2
Batbeer2 premium member - 8 months ago

Thanks for the article.

>> As we can see, the firm ratio is higher than the ones shown by Cognex Corporation (CGNX), Itron Inc. (ITRI) and National Instruments Corporation (NATI). For those investors looking for a higher ratio, Ametek Inc. (AME) could be an option.

Why leave out Waters (WAT).

- Higher gorss margin

- Higher ROE

- Hgher net margin

- Superior growth, most of it organic.

- Lower p/e

- Lower CEO compensation

Please leave your comment:


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