Categories Analysis, Health Care

Is it the right time to invest in Agilent Technologies (A)?

In a cautiously optimistic move, the management reinstated financial guidance that was suspended earlier

Agilent Technologies, Inc. (NYSE: A) ended fiscal 2020 on a positive note, bettering its performance consistently after experiencing a slowdown in the early months amid the virus-induced disruption. The company has effectively navigated the crisis so far, riding on the strength of its core business and improvement in market conditions.

The California-based provider of life science and diagnostic services expanded its market value continuously this year. At the current price, the stock looks overvalued and might not be a wise investment option. But, investors looking for long-term returns would still find it attractive, given the company’s strong fundamentals and positive outlook for the industry. While the uptrend is expected to stay in the coming months, a pullback would create a better buying opportunity. Agilent’s dividend has not been very impressive, even after the recent increase.

On Recovery Path

The low-performing chemical and energy segments, which experienced weakness earlier, bounced back towards the end of the fiscal year. In general, growth is supported by the diverse product portfolio and contributions from the BioTek Instruments business, which joined the Agilent fold about a year ago.

While aggressive spending on capacity addition could help the company tap future opportunities in the rapidly growing industry, it would weigh on liquidity. The ongoing investments in marketing and research & development might add to the cost pressure. The volatility in the global economy is likely to create currency headwinds going forward, thereby putting pressure on the company’s margins.

Strong Q4

In the fourth quarter, revenues grew across all geographical regions — led by China — and business segments to a total of $1.48 billion, representing an 8% annual increase. At $0.98 per share, adjusted earnings were up 10% from the year-ago period. The results also topped expectations. Anticipating the positive momentum to extend into the current fiscal year, the company reinstated financial guidance, predicting mid-single-digits growth in first-quarter and full-year 2021 revenues.

Though the end-market recovery is picking up – giving more visibility into the future – the management has maintained a guidance range that is wider-than-usual to reflect the continuing uncertainty in certain markets.

“When we look at the backlog, we feel very confident about reinstating guidance. But the virus is still out there, and we still think there is still a higher level of uncertainty to call for a prudent approach. Hence it’s a positive, but prudent approach. If it turns out better, we’d be — we’d love to be in a position to be able to raise our outlook for the year, but we thought for the first guide for the year including Q1, we should take a positive and prudent approach, plus recognizing the virus is still out there,” said chief executive officer Mike McMullen during his interaction with analysts this week.


Read management/analysts’ comments on Agilent’s Q4 earnings


Stock Performance

Agilent’s shares were not materially affected by the pandemic and recovered pretty quickly from the market selloff early this year. The momentum picked up since then and the stock hit an all-time high this month. It has gained 30% in the past six months alone, all along outperforming the market and some of its peers. The stock traded lower in the early hours of Tuesday’s session.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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