AI and strong product demand should make Agilent a long-term winner

In 2022, Agilent acquired advanced artificial intelligence (AI) technology developed by Virtual Control, an AI and machine learning software developer. This technology will be integrated into the company’s lab informatics platforms and should enhance the productivity, efficiency, and accuracy of high-throughput labs.

The firm also plans to invest $725 million to double its therapeutic nucleic acids manufacturing capacity in response to rapid growth of that market. Strong demand for the company’s high-quality active pharmaceutical ingredients (API) should lead to renewed revenue and earnings gains.

Meanwhile, the stock trades at 23.9 times the company’s 2024 earnings forecast. We think the lagging share price performance won’t last much longer – this is a top buy for the long run considering the company’s tech and the overall bullish demographic trends for healthcare markets.

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AGILENT TECHNOLOGIES INC. (New York symbol A; www.agilent.com) makes specialized testing equipment for medical research laboratories and industrial clients.

The maker of specialized testing equipment for medical research laboratories and industrial clients has dropped 7.1% in the past year. That’s mainly due to slowing sales to start-up biotech firms, which are facing higher borrowing costs. However, demand from larger customers remains strong, particularly for equipment that can detect polyfluoroalkyl substances (PFAS) in drinking water. Those chemicals may impact the immune system.

In April 2021, Agilent paid $561 million for Resolution Bioscience Inc., which makes equipment to detect cancer in blood samples. However, demand for that firm’s next-generation products failed to materialize. As a result, the company decided to shut it down and take a $270 million writedown on the purchase.

Growth Stocks: Agilent’s revenue and earnings should recover soon

Meantime, Agilent’s revenue in its fiscal 2023 fourth quarter, ended October 31, 2023, fell 8.7%, to $1.69 billion from $1.85 billion a year earlier. That drop is mainly due to 31% lower sales in China as that country’s economic growth slowed. However, demand for equipment that can detect polyfluoroalkyl substances (PFAS) in drinking water remains strong. Those chemicals have the potential to impact the immune system.

Earnings before unusual items also declined 11.4%, to $404 million from $456 million. Due to fewer shares outstanding, per-share earnings fell at a slower rate of 9.8%, to $1.38 from $1.53.

Agilent now expects its earnings for fiscal 2024 will rise about 1% to $5.51 a share. The stock trades at a reasonable 23.9 times that estimate. The company also just raised its quarterly dividend by 4.9%; the new annual rate of $0.944 yields 0.7%.

Recommendation in Wall Street Stock Forecaster: Agilent is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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