Agilent Technologies: Fairly Valued, Little Upside Potential
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shares in Agilent Technologies Inc (NYSE: A) have risen by around 30% since shortly before Christmas as the market in scientific and technical instruments stocks has been given a re-rating by rumors of a bid for Ilumina by Roche, and then confirmation of the bid on Jan. 24. Agilent shares are currently trading around $43, and the mean 12 month price target from analysts researching the stock is $48.86 (13.6% upside potential). This stock is trading markedly above its 50-day exponential moving average of $35.45 and its 200-day exponential moving average of $37.97. The stock saw a decline through the July and August last year, as it fell back with a generally weaker market and fell through technical support around the $40 level. From its 52 week low of $28.67 touched in early October, it has since retraced to the $40 level, and then pushed through in late December as excitement in the sector picked up.
Earnings per share for the last 12 months are $2.85, with full year numbers for next year (ending October 2012) to come in at expected to come in at $3.18. These numbers place the shares on a trailing price to earnings ratio of 14.92, and a forward multiple of 12.30. This trailing price to earnings ratio is a little below the sector average of 16.71, and below competitors Danaher (NYSE: DHR) at 16.45 and Thermo Fisher Scientific (NYSE: TMO) at 15.36.
Agilent has announced that it is to pay its first cash dividend cash dividend of $0.10. This is good news for shareholders and indicative of recent corporate America’s move toward greater reward to shareholders by way of dividend payments. Agilent shares, by way of dividend, now yield more than Danaher, Thermo Fisher Scientific, and Teradyne (NYSE: TER).
Operating margin at Agilent is in line with its rivals too. At 16.22% it compares with 16.45% at Danaher, 20.73% at Teradyne, and 12.98% at Thermo Fisher Scientific. Its return on assets, however, at 26.8% is one of the best in the industry. Teradyne’s respective number is 22.57%, though Thermo Fisher Scientific languishes at 6.87%.
Quarterly revenue growth at Agilent, at 9.6% last quarter year on year, falls some way short of Danaher’s 46.1%, though again is above the sector average of 6%. Shareholders in Agilent have benefited in line with the broader S&P 500 index, though suffered with volatile performance. The recent rise looks to have broken resistance around $40, and the 52-week lows are unlikely to be re-tested.
This said, however, further rises could be short lived. A pull back to $40 may take place in the short term, and if this level holds firm then a new trading range of $40 to $50 seems probable. Overall, the trading pattern of Agilent shares, along with the re-rating of the sector as a whole, leads me to consider that the shares are fairly valued at current levels.
The payment of a dividend is indicative of a more investor friendly outlook. The company has a good cash position ($3.53 billion) and manageable debts (its debt/ equity ratio is 50.63). With earnings expected to rise to $3.18 in 2012, and then $3.47 in 2013, the share price should be supported by prospects, though may find a rise above $50 a little arduous.
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