Agilent Technologies Inc (A, Financial) experienced a daily loss of -3.56% and a 3-month loss of -3.61%. Despite this, the company has reported an Earnings Per Share (EPS) (EPS) of 4.54. This raises a question: Is Agilent Technologies' stock modestly undervalued? This article aims to answer this question through a detailed valuation analysis. Let's delve in.
Company Overview
Originally spun out of Hewlett-Packard in 1999, Agilent Technologies has evolved into a leading life sciences and diagnostics company. Today, it serves a broad base of customers with its three operating segments: life science and applied tools, cross lab (consisting of consumables and services related to life science and applied tools), and diagnostics and genomics. Over half of its sales are generated from the biopharmaceutical, chemical, and advanced materials end markets, but it also supports clinical lab, environmental, forensics, food, academic, and government-related organizations. The company is geographically diverse, with operations in the U.S. and China representing the largest country concentrations.
Understanding the GF Value
The GF Value is a unique measure that estimates the current intrinsic value of a stock. It is computed based on historical multiples, a GuruFocus adjustment factor influenced by the company's past performance and growth, and future business performance estimates. Essentially, the GF Value Line on the summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, the stock is likely overvalued, and its future return may be poor. Conversely, if it is significantly below the GF Value Line, it may be undervalued, and its future return will likely be higher.
Agilent Technologies' GF Value
According to GuruFocus' valuation method, Agilent Technologies (A, Financial) is estimated to be modestly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $121.18 per share, Agilent Technologies has a market cap of $35.50 billion, indicating that it is modestly undervalued.
Because Agilent Technologies is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Agilent Technologies has a cash-to-debt ratio of 0.43, which is worse than 69.62% of companies in the Medical Diagnostics & Research industry. The overall financial strength of Agilent Technologies is 7 out of 10, which indicates fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Agilent Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $7 billion and Earnings Per Share (EPS) of $4.54. Its operating margin is 24.02%, which ranks better than 90.58% of companies in the Medical Diagnostics & Research industry. Overall, the profitability of Agilent Technologies is ranked 9 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. Agilent Technologies's 3-year average revenue growth rate is better than 52.48% of companies in the Medical Diagnostics & Research industry. Agilent Technologies's 3-year average EBITDA growth rate is 17.9%, which ranks better than 58.64% of companies in the Medical Diagnostics & Research industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Agilent Technologies's ROIC is 16.12 while its WACC came in at 10.
Conclusion
Overall, Agilent Technologies (A, Financial) stock is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 58.64% of companies in the Medical Diagnostics & Research industry. To learn more about Agilent Technologies stock, you can check out its 30-Year Financials here.
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