Agilent Stock Study (5-17-23)

I recently did a stock study on Agilent Technologies Inc. (A) with a closing price of $126.29. The first study is here.

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-size 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. PTPM has led peer and industry averages, trending higher from 11.9% in ’15 to 22.0% in ’22 with a last-5-year average of 19.3%.

ROE has been roughly even with peer and industry averages in climbing from 10.6% in ’15 to 24.2% in ’22 with a last-five-year average of 18.2%.

Over the last decade, Debt-to-Capital has been less than peers and the industry with a last-5-year average of 32.5%. Interest Coverage is 19.1 and Quick Ratio is 1.4. Value Line rates Agilent an A for Financial Strength and M* rates them Exemplary for Capital Allocation.

I forecast long-term annualized sales growth of 5% based on the following:

• CNN Business projects 4.4% YOY and 5.7% per year for ’23 and ’22-’24, respectively (based on 16 analysts).
• YF projects YOY 3.6% and 6.8% for ’23 and ’24, respectively (18 analysts).
• Zacks projects YOY 3.3% and 6.4% for ’23 and ’24, respectively (6).
• Value Line projects 7.2% annualized growth from ’22-’27.
• CFRA projects 3.6% YOY and 5.2% per year for ’23 and ’22-’24, respectively.
• M* projects 5.0% annualized growth from ’22-’26 in its analyst note and gives a 2-year ACE of 5.5%.

I am forecasting at the bottom of the long-term range.

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

• CNN Business projects 9.0% YOY and 9.8% per year for ’23 and ’22-’24, respectively (based on 16 analysts), along with 5-year annualized growth of 13.0%.
• MarketWatch projects 11.4% and 11.5% per year for ’22-’24 and ’22-’25, respectively (18 analysts).
• Nasdaq.com projects 9.5% YOY and 10.5% per year for ’24 and ’23-’25 (8, 8, and 4 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 12.2%.
• YF projects YOY 9.0% and 10.5% for ’23 and ’24, respectively (19), along with 5-year annualized growth of 13.7%.
• Zacks projects YOY 8.8% and 9.5% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 12.0%.
• Value Line projects annualized growth of 11.9% from ’22-’27.
• CFRA projects 9.2% YOY and 10.0% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 28.0%.
• M* projects long-term growth of 9.0% per year.

I am forecasting at the low end of the long-term estimate range [mean of six: 12.0%]. To be conservative, I am projecting from the ’22 EPS of $4.18/share rather than Q1 ’23 EPS (annualized) of $4.43/share.

My Forecast High P/E is 31. 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 forecasting less than all values except ’19 and also less than the last-5-year-average average P/E of 31.8.

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 am forecasting less than all values except ’19 and ’17 (20.6).

My Low Stock Price Forecast (LSPF) is the default [based on $4.18 EPS] value of $96.10. This is 23.9% less than the previous closing price and 7.0% less than 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 forecasting 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 Agilent in the HOLD zone with an U/D ratio of 2.4. Total Annualized Return (TAR) is 10.2%.

PAR (using Forecast Average—not High—P/E) is 7.3%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 34 studies done in the past 90 days (9 outliers plus my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 6.3%, 9.0%, 33.6, 24.8, and 29.1%. I am lower on four of five inputs and equal on EPS growth. Value Line’s future average annual P/E of 25.0 is lower than both MS (29.2) and mine (27.0).

With regard to other data, MS high and low EPS are $6.82/share and $4.30/share in contrast to my $6.43 and $4.18. Although my numbers are a tad lower, I don’t perceive significant MOS in this study. MS LSPF of $101.00 implies a Forecast Low P/E of 23.5 (versus the above-stated 24.8), is 5.3% less than the $4.30 * 24.8 = $106.64 default, and is 5.1% greater than mine.

Shares are a BUY under $121, but I want projected return closer to 15.0% and PAR doesn’t get me there right now.

I will look to re-evaluate this stock under $115/share.