Filed Under:
Tickers in this Article: A, ILMN, DHR, AFFX, BRKR, ARX, WAT
You would think that a company with a global revenue base, diverse industry exposure and solid returns on capital would get the benefit of the doubt. But in the case of Agilent (NYSE:A), you would seem to be wrong. Agilent may not command as much respect for technology leadership as a company like Illumina (Nasdaq:ILMN), but Agilent's diverse and growing business deserves more respect and investors should consider using this market pullback as a chance to buy some shares in this high-quality company.

TUTORIAL: 20 Investments To Know

Third Quarter Results Better than Feared
Even though there was not much sign of it in the published analyst estimates, sentiment had definitely been souring on Agilent going into this earnings cycle. Nevertheless, Agilent reported that sales grew more than 22% in the fiscal third quarter, with 19% organic revenue growth. Growth was led by the electronic measurement segment (up almost 24%), where growth in the communications business was especially strong. Life sciences delivered solid 21% growth (18% organic), and chemical analysis was the "laggard" with 16% reported and 11% organic revenue growth.

Margin performance was positive as well. GAAP gross margin increased about 40 basis points, though the company's segment-by-segment breakdown showed gross margins (non-GAAP) declining in every segment. Operating income more than doubled on a reported basis, with adjusted operating income climbing 36%. Accordingly, it seems fair to say that the margin performance was muddy but generally pointing in the correct direction.

Balance Pays Off
Agilent saw good growth in life sciences among its biopharmaceutical customers while academic sales were weak. This could pay off even more in the coming years as governments in the U.S. and Western Europe face severe budget issues and may have to cut research funding. While companies like Illumina, Affymetrix (Nasdaq:AFFX), and Bruker (Nasdaq:BRKR) are very exposed to that government spending issue (and also saw more of a jump during the stimulus era) - Agilent is not.

The same idea seems to hold true in the company's electronic test and measurement segment. Agilent and Danaher (NYSE:DHR) seem to be holding up better than more specialized companies like Aeroflex (NYSE:ARX), EXFO (Nasdaq:EXFO) and Ixia (Nasdaq:XXIA). Even if Agilent is not always seen as a technology leader in its markets, the diversity of its customer base seems to be paying off in more revenue stability.

The Bottom Line
Agilent is never going to be a burner like Illumina or Pacific Biosciences (Nasdaq:PACB), but 13% order growth this quarter hardly demands an apology. Moreover, expectations for Agilent are such that it does not have the same boom/bust risk that those two hot life sciences names usually have.

Given the troubles in the academic world, this seems like a time when it's better to own the likes of Agilent, Waters (NYSE:WAT), and Mettler-Toledo (NYSE:MTD). Agilent is not immune to the risks of another recession, but exposure to industries like energy, chemicals, and food/beverage should offer some protection. What's more, this is a company with a solid double-digit return on capital that looks like it is undervalued by at least 20% on a conservative cash flow projection. For investors who want to book long-term gains without needing a lot of flash, Agilent is a good idea to consider today. (For more, see Healthcare Funds: Give Your Portfolio A Booster Shot.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center