Agilent Stock Study (2-22-23)

I recently did a stock study on Agilent Technologies Inc. (A) with a closing price of $143.42.

M* writes:

     > Originally spun out of Hewlett-Packard in 1999, Agilent has
     > evolved into a leading life sciences and diagnostics firm.
     > Today, Agilent’s measurement technologies serve a broad base
     > of customers with its three operating segments: life science
     > and applied tools, cross lab (consisting of consumables and
     > services related to its 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.

Since 2015, this medium-sized company has grown sales and earnings at annualized rates of 7.8% and 19.3%, respectively. Lines are mostly up and straight except for EPS declines in ’18 and ’20. Over the last 10 years (excluding ’17), PTPM has trended higher from 11.9% in ’15 to 22% in ’22 with a last-5-year average of 19.3%. This leads peer and industry averages.

ROE has also trended higher from 10.6% in ’15 to 24.2% in ’22 with a last-five-year average of 18.2%. This is slightly ahead of peer and industry averages. Interest Coverage is 18 and Quick Ratio is 1.32. Value Line gives Agilent an A rating for Financial Strength and M* rates them Exemplary on Capital Allocation including “its sound balance sheet management.”

I forecast long-term annualized sales growth of 6% based on the following:

• CNN Business projects 2.9% YOY and 5% per year for ’23 and ’22-’24, respectively (based on 16 analysts).
• YF projects YOY 2.3% and 7.2% for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 1.6% and 7.2% for ’23 and ’24, respectively (5).
• Value Line projects 7.2% annualized from ’22-’27.
• CFRA projects 2.1% YOY and 5.3% per year for ’23 and ’22-’24, respectively.
• M* projects 6% annualized from ’22-’26 in analyst note and gives 2-year ACE of 4.9%.

I forecast long-term annualized EPS growth of 9% based on the following:

• CNN Business projects 8.6% YOY and 9.9% per year for ’23 and ’22-’24, respectively (based on 16 analysts), along with a 5-year annualized growth rate of 13%.
• MarketWatch projects 11.6% and 11.7% per year for ’22-’24 and ’22-’25, respectively (18 analysts).
• Nasdaq.com projects 9.9% YOY and 10.5% per year for ’24 and ’23-’25 (8, 6, and 4 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 16%.
• YF projects YOY 8.2% and 11.7% for ’23 and ’24, respectively (14), along with 5-year annualized growth of 13.5%.
• Zacks projects YOY 8.6% and 9.7% for ’23 and ’24, respectively (6), along with 5-year annualized growth of 10%.
• Value Line projects annualized growth of 11.9% from ’22-’27.
• CFRA projects 8.4% YOY and 10.2% per year for ’23 and ’22-’24, respectively, along with 3-year [NB: not a long-term estimate] CAGR of 31%.
• M* projects 9% annualized from ’22-’26 in its analyst note and gives long-term ACE of 9% as well.

I am forecasting at the low end of the [six] long-term estimate[s] range [mean 12.2%].

My Forecast High P/E is 32. Since ’15, High P/E has ranged from 24.4 (’19) to 77.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 39.1. I am projecting lower than all values except ’19.

My Forecast Low P/E is 23. Since ’15, Low P/E has ranged from 18.4 (’19) to 62.3 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 24.5. I could go with 20 and project lower than all values except ’19 but instead, I am projecting lower than all values except ’19 and ’17 (20.6).

My Low Stock Price Forecast is the default $95.90. This is 33.1% below the previous closing price and 7.2% below the ’21 low.

Since ’15, Payout Ratio has ranged from 19.5% (’19) to 61.4% (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 22.6%. I am projecting to the low side [at 19%] even though Value Line says positive things about the company’s ability to raise the dividend.

These inputs land A in the HOLD zone with an U/D ratio of 1.3. The Total Annualized Return (TAR) is 8.1%.

With TAR a bit lower than I would like for a medium-sized company, PAR (using Forecast Average, not High P/E) is definitely too low at 5%. This is not a huge surprise with the stock up almost 79% over the last three years.

I like to add more context to my studies by comparing my inputs to Member Sentiment (MS). Out of only 30 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 6.3%, 9.4%, 34.2, 25.1, and 28.9%, respectively. I am lower on all inputs. My P/E range is more than two points lower, but Value Line projects an average annual P/E that is even lower at 25 (vs. 27.5). I don’t think margin of safety in this study is anything to write home about.

My Low Stock Price Forecast is a tad higher than MS $92.78. See my comments on this in the Forecast Low P/E section.

M* categorizes Agilent with a wide economic moat, which is an alluring reason to buy. If we can get a 15% stock selloff, then I’ll be in line to do just that.