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Agilent Technologies: Diagnostics and Life Sciences
03/26/2020 5:00 am EST
Life Sciences and Applied Markets provide instruments and software that enable its customers (e.g. Pharmaceutical, Academic/Government, Chemical and Energy) to identify and analyze substances.
Its second segment, Diagnostics and Genomics, provides active pharmaceutical ingredients that allow pathology labs in hospitals, medical centers, and labs to look at samples for testing and diagnosis. The remaining business, CrossLab, supply labs software, sample preparation products, and laboratory instruments.
Since early March, Agilent Technologies is down 21%, from $84. It is instructive to look back to see that the stock has huge upside potential at these levels.
During the depths of the Great Recession, Agilent fell to under $10 in 2009 before increasing 9x over the next decade prior to the recent pullback. Starting in 2010, the company reported year-over-year increases in revenue, which is quite a feat.
Business disruptions are a fact of life with the coronavirus and even Agilent is not immune. The good news is that the company will make up for these sales once things resume to normal since they are merely delayed, not lost.
The company can sustain long-term profitability given its strong market position in these markets, and, selling worldwide helps soften the blow when a region suffers. To put it simply, people need healthcare and these companies rely on Agilent for key items.
Revenue continued to steadily advance, with fiscal 1Q20’s (ended January 31, 2020) top line rising 6% versus the year-ago period, to $1.4 billion. Profit fell to $220 million from $250 million due to higher Selling, General and Administrative costs.
There is $2.7 billion of debt, and we would like to see this reduced, while it has $1.2 billion in cash. With the industry’s relative stability and strong cash flow generation ($1 billion operating cash flow in FY19), we are not too concerned.
BMR Take: The company raised January’s quarterly dividend payout by 10% to $0.18, which is always a nice sign. We fully expect the stock to rebound and reach new heights, even if we can’t tell you when.
That being said, the bear market has left the price below our $74 Sell Price, so you need to decide if you want this to remain in your portfolio. Our target price is $100.
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