The company is seeing 25.8% improved sales and earnings as hospitals and research labs start to order new equipment now that the COVID-19 pandemic is easing. The firm will also benefit from recent acquisitions.
We expect sales for this industry leader to continue to rebound over the next few months as its customers resume normal purchasing habits. This is just one more reason why it’s one of our top picks.
The stock trades at 36.6 times the company’s 2021 earnings forecast.
AGILENT TECHNOLOGIES INC. (New York symbol A; www.agilent.com) makes testing equipment for medical research laboratories and industrial clients.
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The COVID-19 pandemic continues to spur strong demand for Agilent’s equipment from pharmaceutical firms working on vaccines and new drugs. That offsets weaker sales to universities.
Investors can expect Agilent to spend a high 8% of its revenue on research this year. That depresses earnings, but new products from that spending should continue to spur the stock. It trades at a reasonable 36.6 times the $4.31 a share that Agilent expects to earn in fiscal 2021.
The company announced a new $2 billion share buyback plan.
What’s more, activist investor Bill Ackman, through his Pershing Square Capital Management hedge fund, now holds about $1.7 billion worth of Agilent shares.
Ackman feels Agilent is undervalued, particularly as it gets 60% of its revenue from software, lab supplies and services. That cuts its reliance on selling new equipment.
Agilent also uses acquisitions to spur its growth. However, it cuts the risk of this strategy by focusing on firms with technology that will complement its own products.
For example, in November 2018, the company acquired ACEA Biosciences for $250.0 million. ACEA makes equipment that research labs use to test cells for drugs, viruses and diseases. Agilent can use its distribution networks to expand the availability of ACEA’s products.
In August 2019, the company paid $1.17 billion for BioTek Instruments. That firm makes a variety of equipment for medical research labs, including cell imaging systems, microplate readers, washers, dispensers and incubators.
In April 2021, Agilent paid $550 million for Resolution Bioscience Inc., which makes equipment to detect cancer in blood samples. Depending on that firm’s future performance, Agilent will have to pay an additional $145 million.
Meanwhile, revenue in the fiscal third quarter ended July 31, 2021, rose 25.8%, to $1.59 billion from $1.26 billion a year earlier. Earnings in the quarter jumped 38.7%, to $337 million from $243 million; per-share earnings improved 41.0%, to $1.10 from $0.78.
The company probably earned $4.31 a share for all of fiscal 2021. The stock, which is up 45% in the past year, trades at 36.6 times that estimate. That’s a reasonable multiple in light of Agilent’s high market share and research costs (7% of revenue). The $0.776 dividend yields 0.5%.
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