It is impossible to follow every good stock out there and missing good opportunities is just part and parcel of being an investor. That said, investors should always be on the lookout for a second crack at good companies. With Agilent (NYSE:A) suffering a bit from a temporary slowdown in telecom infrastructure equipment, investors may have the opportunity again to buy shares in an excellent company at an appealing price.

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Fiscal First Quarter Results a Bit Disappointing
For the most part, Agilent had a good quarter but it seems more likely that the Street is going to focus most of its attention on what didn't go so well. Revenue was up about 7% as reported and more than 6% on an organic basis - below the low end of management's prior guidance range.

The company's life sciences and chemical analysis businesses were both solid, with growth of 14 and 13%, electronic test and measurement was the problem child. Due in part to weak demand for telecom infrastructure products, results here were flat on a year-over-year basis.

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Margins were pretty good. There was slight slippage in gross margin, but operating income rose 28% and operating margin improved more than many analysts had expected.

All in all, then, this wasn't a bad quarter and the reports from companies like Juniper (NYSE:JNPR) and JDS Uniphase (Nasdaq:JDSU) certainly support the idea that anyone selling products tied to carrier infrastructure spending has seen a slowdown in sales. (To know more about income statements, read Understanding The Income Statement.)

Decent Order Outlook
Although Agilent reported that overall orders were flat and the book-to-bill was 0.99, test and measurement was once again the story. Orders were up in the single digits in life sciences and chemical analysis, with orders down in test and measurement.

Unlike other life sciences tools companies like Affymetrix (Nasdaq:AFFX) or Illumina (Nasdaq:ILMN), Agilent saw decent growth in academic sales (though they're a small part of sales). Other markets like petrochemicals and food and water testing were quite strong.

Building up Life Sciences and Moving Towards Diagnostics
Agilent has made it fairly clear that it sees more long-term growth potential in its life sciences businesses, and is moving to expand in that direction. The company did a few small (but savvy) bolt-on deals this quarter and is looking for more. The company is also rolling out a strategy for diagnostics, including getting its Infinity 1200 LC and 6000 MS platforms classified as Class 1 devices by the FDA.


I will be curious to see how Agilent goes about this. I don't see the company committing the sort of capital it would take to develop a molecular diagnostics platform to go head-to-head with Cepheid (Nasdaq:CPHD), Gen-Probe (Nasdaq:GPRO) or Abbott Labs (NYSE:ABT). On the other hand, I wouldn't be shocked if the company at least lobbed a call in to Becton Dickinson (NYSE:BDX) to ask if they'd consider selling BD Biosciences.

I also wonder if Agilent might think about broken stocks like Pacific Biosciences (Nasdaq:PACB), Wafergen or Helicos with an eye towards harvesting and repackaging interesting technology and IP.

The Bottom Line
Although Agilent's test and measurement business adds some unpredictable cyclicality to results, I like the overall business mix here, not to mention the double-digit returns on assets and capital and the strong free cash flow conversion. Moreover, it's encouraging to see Agilent being patient and rational about exploiting its long-range growth opportunities.

Agilent is not stunningly cheap today, but fair value should be somewhere in the low $50s and that's cheap enough to be very interesting. Though this stock may be more volatile than some investors prefer, I think this is a solid name with underappreciated growth potential. (For more, see Earning Forecasts: A Primer.)

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.