Strategic acquisitions and new product development both spur growth for this stock.
The company made three key acquisitions in 2018 that bring valuable additions to its specialized testing equipment, particularly in the medical field. Revenue rose in the most recent quarter and earnings per share jumped by 20%. This stock has a sound balance sheet, which lets it sustain high research spending. In the meantime, it is rewarding investors with share buybacks.
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AGILENT TECHNOLOGIES INC. (New York symbol A; www.agilent.com) was established as a spinoff from Hewlett-Packard in 1999. The company makes specialized testing equipment, like mass spectrometers, for medical research laboratories and industrial clients.
In March 2018, Agilent made two acquisitions. It agreed to pay $250 million for Iowa-based Advanced Analytical Technologies, Inc. That privately held firm makes equipment to analyze nucleic acids (RNA and DNA), proteins, carbohydrates and small molecules. It sells those products to research laboratories, pharmaceutical makers and chemical companies.
It also exercised its option to purchase the remaining 52% of Lasergen Inc. for $105 million. Based in Houston, the firm makes equipment to analyze DNA and other biological markers. Agilent originally paid $80 million for 48% of Lasergen in March 2016.
The total cost of these two recent purchases—$355 million—is low next to Agilent’s $22.6 billion market cap.
In September 2018, the company agreed to acquire ACEA Biosciences for an undisclosed amount. ACEA makes equipment that research labs use to test cells for drugs, viruses and diseases. The purchase will help improve Agilent’s medical analysis products. Agilent can also use its distribution networks to expand the availability of ACEA’s products.
Thanks to recent acquisitions and the launch of new products, the company earned $262 million for the fiscal 2018 fourth quarter, ended October 31, 2018. That’s up 20.2% from $218 million a year earlier. Due to fewer shares outstanding, earnings per share increased at a slightly faster rate of 20.9%, to $0.81 from $0.67.
Those amounts exclude several unusual items such as the cost to integrate new businesses and changes to the U.S. tax code. On that basis, the latest earnings beat the consensus estimate of $0.74.
Revenue rose 8.8%, to $1.29 billion from $1.19 billion. That also beat the consensus forecast of $1.26 billion.
Agilent can comfortably afford to keep expanding. As of October 31, 2018, the company held cash of $2.3 billion, while its long-term debt was just $1.8 billion, or a low 12% of its market cap.
Agilent now expects to earn between $3.00 and $3.05 a share for all of fiscal 2019. The stock trades at 21.8 times the midpoint of that range. That’s a reasonable multiple in light of the company’s high level of research spending; it totalled 7.5% of revenue in the latest quarter.
The company pays a quarterly dividend of $0.164. The annual rate of $0.656 yields 0.9%. Agilent also plans to buy back up to $1.75 billion of its shares, or 8% of its $21.7 billion market cap. There are no time limits for those purchases.
Recommendation in Wall Street Stock Forecaster: Agilent is a buy.
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