Agilent Technologies (A) began as a spinoff of Hewlett Packard (HPE) on November 18, 1999. The company raised $2.1 billion during its IPO, a record for a Silicon Valley tech company at the time.
Today Agilent operates as three business units: Life Sciences and Applied Markets, Diagnostics and Genomics, and its “Crosslab” business. The first two units sell physical instruments and software, while the third sells maintenance services and the consumable products used while running the analytical instruments.
The last unit is perhaps the most promising for the future of Agilent. This new group was created in September of 2016 by the then division leader and now CEO, Mike McMullen. This group provides consumables and services to the companies that have already purchased analytical machines from Agilent.
While this group is a great profit generator for the company (its operating margin for the last quarter was 29.9%), its real value lies in its marketing potential. This is a natural (and lucrative) way for the company to increase its touchpoints with previous customers and make sure they are satisfied with their purchases, all while creating a new revenue stream.
After reviewing Agilent stock’s intrinsic value, the company’s business model, and what the Wall Street analysts and bloggers are saying, I am bullish on this stock. It is a good investment for growth investors looking for a 10-15% increase in value over the next 12 months and a small but growing dividend as icing on the cake.
Recent Results
Agilent has been trading between $114.52 (the 52-week low set on March 3, 2021) and $179.06 (the 52-week high set on September 5, 2021).
Agilent brought in revenues of $6.319 billion over the last twelve months with a net income of $1.21 billion.
The company has reported fourth-quarter earnings of $1.21 per share, beating analyst estimates of $1.18 per share.
Dividend
The company declared a dividend payable on January 25, 2022, of $0.21 per share, with a dividend yield of 0.5%. This is a 10.5% increase over the last quarterly dividend issued of $0.19 per share and marks the seventh straight year Agilent has increased dividends.
This is the rare dividend-paying stock where the growth rate of the dividend is outpacing inflation, meaning that investors are gaining real purchasing power. Most investments lose value during high inflation, and Agilent is a rare exception.
Analysis
While the company has robust year-over-year growth (with earnings per share up 23% for the fourth quarter of 2021), it shows a bit of weakness on the balance sheet. The company has a current ratio of 0.73, which means that it has about three-quarters of the cash, equivalents, and other current assets required to pay its bills over the next year.
When calculated by modeling discounted cash flows and an analysis of the income statement, the intrinsic value shows that this is a sound investment, and the low current ratio is not going to be a long-term problem for the company. The stock’s intrinsic value was pegged at $176.89 by the author, with strong operating margins of 25.5% and earnings growth of 23%.
Can the Stock Go Higher?
Perhaps the best reason to be bullish on this stock is the five-year-old CrossLab Group. It has shown consistently strong results, with 10% year-over-year growth in Q4 2021 compared to Q4 2020, and 16% year-over-year growth in Fiscal Year 2021 compared to Fiscal Year 2020.
What is really exciting about this group is that it sells products laboratories need much more regularly than the instruments that the other two sell. This group sells the consumables consumed when the devices are used and services to service the machines for the labs. This is a great way to extend the customer relationship.
Wall Street’s Take
Turning to Wall Street, Agilent has a Strong Buy consensus rating, based on four Buys and one Hold assigned in the past three months. The average Agilent price target of $179 implies 11.6% upside potential.
Analyst price targets range from a low of $169 per share to a high of $187 per share.
Conclusion
Based on the intrinsic value of this stock, the Wall Street analyst’s estimates, and the blogger estimates covering Agilent, I am bullish on this stock.
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Disclosure: At the time of publication, Tim O’Rourke did not have a position in any of the securities mentioned in this article.
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