Agilent Stock Study (8-8-23)

Posted by Mark on October 23, 2023 at 06:48 | Last modified: August 8, 2023 10:21

I recently did a stock study on Agilent Technologies Inc. with a closing price of $126.51. Previous studies are here and 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 leads peer and industry averages by trending higher from 11.9% in ’15 to 22.0% in ’22 with a last-5-year mean of 19.3%.

Also since 2015, ROE is even with peer and industry averages by trending higher from 10.6% in ’15 to 24.2% in ’22 with a last-five-year mean of 18.2%. Debt-to-Capital is been less than peer/industry averages with a last-5-year mean of 32.5%.

Interest Coverage is 19.0 and Quick Ratio is 1.5. Value Line rates the company A for Financial Strength and M* rates them “Exemplary” for Capital Allocation with a “Wide” Economic Moat.

With regard to sales growth:

• CNN Business projects 2.9% YOY and 4.3% per year for ’23 and ’22-’24, respectively (based on 16 analysts).
• YF projects YOY 1.8% and 5.7% for ’23 and ’24, respectively (17 analysts).
• Zacks projects YOY 2.1% and 5.9% for ’23 and ’24, respectively (6).
• Value Line projects 7.2% annualized growth from ’22-’27.
• CFRA projects 2.6% YOY and 5.0% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 4.3% and projects 5.0% annualized growth from ’22-’26 in its analyst note.

My 5.0% per year forecast is at the bottom of the long-term range.

With regard to EPS growth:

• CNN Business projects 7.5% YOY and 8.1% per year for ’23 and ’22-’24, respectively (based on 16 analysts), along with 5-year annualized growth of 14.0%.
• MarketWatch projects 9.5% and 9.9% per year for ’22-’24 and ’22-’25, respectively (20 analysts).
• Nasdaq.com projects 7.5% YOY and 8.2% per year for ’24 and ’23-’25 (7, 7, and 4 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 11.0%.
• YF projects YOY 5.4% and 8.7% for ’23 and ’24, respectively (19), along with 5-year annualized growth of 11.0%.
• Zacks projects YOY 7.5% and 7.5% for ’23 and ’24, respectively (7), along with 5-year annualized growth of 11.0%.
• Value Line projects annualized growth of 11.9% from ’22-’27.
• CFRA projects 8.2% YOY and 9.8% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 15.0%.
• M* projects long-term growth of 8.4% per year.

I am forecasting below the long-term estimate range [mean of six: 11.2%] at 8.0% per year. I will use ’22 EPS of $4.18/share as the initial value rather than 2023 Q2 EPS of $4.54 (annualized).

My Forecast High P/E is 31.0. Since 2015, high P/E has ranged from 24.4 (’19) to 77.3 (upside outlier in ’18) with a last-5-year mean of 39.1 (outlier excluded). The last-5-year-mean average P/E is 31.8. I am forecasting less than all values except ’19.

My Forecast Low P/E is 23.0. Since 2015, low P/E has ranged from 18.4 (’19) to 62.3 (upside outlier in ’18) with a last-5-year mean of 24.5 (outlier excluded). I am forecasting less than all values except ’19 and ’17 (20.6).

My Low Stock Price Forecast (LSPF) of $96.10 is default based on $4.18/share initial value. This is 24.0% less than the previous closing price and 7.0% less than the ’21 low.

Since 2015, Payout Ratio has ranged from 19.5% (’19) to 61.4% (upside outlier in ’18) with a last-5-year mean of 22.6% (outlier excluded). I am forecasting to the low side at 19.0% 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 a U/D ratio of 2.1. Total Annualized Return (TAR) is 9.1%.

PAR (using Forecast Average—not High—P/E) is 6.3%, 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 72 studies done in the past 90 days (my study along with 18 outliers 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 5.0%, 7.7%, 35.0, 24.5, and 27.9%. I am higher only on EPS growth rate. Value Line’s future average annual P/E of 25.0 is lower than both MS (29.8) and mine (27.0).

MS high / low EPS are $6.42 / $4.49 vs. my $6.14 / $4.18 (per share). My EPS range is slightly lower.

MS LSPF of $102.60 implies a Forecast Low P/E of 22.9 vs. the above-stated 24.5. MS LSPF is 6.7% less than the default $4.49/share * 24.5 = $110.00, which results in more conservative zoning. MS LSPF remains 6.8% greater than mine.

My TAR (over 15.0% preferred) is less than MS 13.7%.

MOS backing the current study seems moderate.

I track a few different valuation metrics. PEG per Zacks is 2.1 and 3.2 per my projected [forward] P/E: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.88. Kim Butcher’s “quick and dirty DCF” prices the stock at 20.0 * [$9.85 – ($1.40 + $1.55)] = $138.00 thereby suggesting the stock to be undervalued by 8.0%.

I would look to re-evaluate Agilent under $120/share.