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Agilent Technologies Inc Valuation – February 2016

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Agilent Technologies Inc (A) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Agilent Technologies Inc. is engaged in the life sciences, diagnostics and applied chemical markets. The Company provides application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow. The Company has three business segments: the life sciences and applied markets business, the diagnostics and genomics business, and the Agilent CrossLab business. The Company’s life sciences and applied markets business segment brings together the Company’s analytical laboratory instrumentation and informatics. The Company’s diagnostics and genomics business segment consists of three businesses: the Dako business, the genomics business and the nucleic acid solutions business. The Company’s Agilent CrossLab business segment combines its analytical laboratory services and consumables business.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of A – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,915,063,376 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.78 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 40.00% Pass
6. Moderate PEmg Ratio PEmg < 20 20.05 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.85 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.78 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.61 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

A value Chart February 2016

EPSmg $1.77
MG Growth Estimate -3.74%
MG Value $1.82
Opinion Overvalued
MG Value based on 3% Growth $25.60
MG Value based on 0% Growth $15.01
Market Implied Growth Rate 5.77%
Current Price $35.39
% of Intrinsic Value 1946.75%

Agilent Technologies Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.35 in 2012 to an estimated $1.77 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.77% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Stage 3: Information for Further Research

A Charts February 2016

Net Current Asset Value (NCAV) $1.12
Graham Number $22.98
PEmg 20.05
Current Ratio 3.78
PB Ratio 2.85
Dividend Yield 1.13%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information Oct2015
Total Current Assets $3,686,000,000
Total Current Liabilities $976,000,000
Long-Term Debt $1,655,000,000
Total Assets $7,479,000,000
Intangible Assets $2,811,000,000
Total Liabilities $3,312,000,000
Shares Outstanding (Diluted Average) 335,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.87
Oct2015 $1.20
Oct2014 $1.62
Oct2013 $2.10
Oct2012 $3.27
Oct2011 $2.85
Oct2010 $1.94
Oct2009 -$0.09
Oct2008 $1.87
Oct2007 $1.57
Oct2006 $7.50
Oct2005 $0.65
Oct2004 $0.75
Oct2003 -$4.35
Oct2002 -$2.22
Oct2001 $0.38
Oct2000 $1.66
Oct1999 $1.35
Oct1998 $0.56

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.77
Oct2015 $1.88
Oct2014 $2.26
Oct2013 $2.39
Oct2012 $2.35
Oct2011 $1.80
Oct2010 $1.71
Oct2009 $1.83
Oct2008 $2.68
Oct2007 $2.46
Oct2006 $2.10
Oct2005 -$0.72
Oct2004 -$1.19
Oct2003 -$1.65
Oct2002 -$0.09
Oct2001 $0.91
Oct2000 $1.03

Recommended Reading:

Other ModernGraham posts about the company

Agilent Technologies Inc. Valuation – October 2015 Update $A
Agilent Technologies Inc. Analysis – July 2015 Update $A
27 Companies in the Spotlight This Week – 4/4/15
Agilent Technologies Inc. Quarterly Valuation – April 2015 $A

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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