Topic: Growth Stocks

Hewlett-Packard spinout spurs growth with heavy R&D spending

This maker of specialized medical and industrial testing equipment continues to see its investments in research and develop pay off. Both its earnings and revenue rose in the latest quarter—growth also helped by its strategic acquisitions.

In addition, the company increasingly stands to benefit from rising demand for replenishable supplies and software updates. They now account for about 25% of its total revenue.


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AGILENT TECHNOLOGIES INC., $67.72, (New York symbol A; www.agilent.com) makes specialized testing equipment such as mass spectrometers for medical research laboratories and industrial clients.

In 2000, the old Hewlett-Packard set up Agilent as the owner of its testing equipment business, and then spun Agilent off—that is, handed it out to its own shareholders as a special dividend. Since then, Agilent has completed two spinoffs of its own: Verigy (in 2006), a maker of computer chip testing gear; and Keysight (in 2014), focused on products for testing electronic equipment.

Agilent’s revenue rose 2.9%, from $6.8 billion in 2013 to $7.0 billion in 2014 (fiscal year ends October 31). Earnings rose 3.4%, from $995 million to $1.03 billion; because it had fewer shares outstanding, its earnings per share rose 5.6%, from $2.88 to $3.04.

In November 2014, Agilent spun off its Keysight subsidiary and gave its shareholders one Keysight share for every two Agilent shares they held.

Earnings soared 194.8%, from $232 million in 2014 to $684 billion in 2017; with fewer shares outstanding, Agilent’s earnings per share rose at the faster rate of 204.3%, from $0.69 to $2.10. A one-time charge related to the new U.S. tax code cut Agilent’s earnings to $316 million, or $0.97 a share, in 2018. Without that charge, it earned $2.97 a share.

In its fiscal 2019 first quarter, ended January 31, 2019, Agilent earned $244 million. That’s up 13.0% from $216 million a year earlier. Due to fewer shares outstanding, earnings per share increased 15.2%, to $0.76 from $0.66. Revenue rose 6.0%, to $1.28 billion from $1.21 billion.

Growth Stocks: Research spending fuels new growth

In addition to acquisitions, Agilent continues to invest heavily in developing its own products. Its research costs in the latest quarter rose 8.5%, to $102 million (or 7.9% of revenue) from $94 million (or 7.8%) a year earlier.

Among its new products are mass spectrometers that detect and verify the active ingredients in cannabis. Those machines can also measure the composition of soil and fertilizers used to grow cannabis. That will help producers improve the quality of their products and maximize crop yields.

Agilent also stands to gain from ongoing sales of replenishable supplies and software updates. Services now account for about 25% of its total revenue.

The company is positioned to keep investing in its operations: as of January 31, 2019, it held cash of $2.1 billion; and its $1.8 billion in long-term debt is just 7% of its market cap.

Agilent expects to earn between $3.03 and $3.07 for all of fiscal 2019. The stock trades at a high 25.9 times the midpoint of that range. That’s a reasonable multiple in light of its high level of research spending.

The company also plans to buy back up to $1.75 billion of its shares, or 8% of its market cap. There are no time limits for those purchases. As well, it recently increased its quarterly dividend by 10.1%, to $0.164 a share from $0.149. The new annual rate of $0.656 yields 0.8%.

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

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