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Agilent Technologies Inc Valuation – August 2016 $A

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 – July 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. provides application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow. The Company serves the life sciences, diagnostics and applied chemical markets. It has three business segments: life sciences and applied markets business, diagnostics and genomics business, and Agilent CrossLab business. Its life sciences and applied markets business segment offers instruments and software that enable customers to identify, quantify and analyze the physical and biological properties of substances and products, as well as enable customers in the clinical and life sciences research areas to interrogate samples at the molecular level. Its diagnostics and genomics business segment includes the reagent partnership, pathology, companion diagnostics, genomics and the nucleic acid solutions businesses. Its Agilent CrossLab business segment spans the entire lab with its consumables and services portfolio.

A Chart

A data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of A – August 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 $14,954,007,072 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.07 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 30.15% Fail
6. Moderate PEmg Ratio PEmg < 20 28.70 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.60 Fail
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 3.07 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.69 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 August 2016

EPSmg $1.66
MG Growth Estimate -4.25%
MG Value $0.42
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $24.06
MG Value based on 0% Growth $14.10
Market Implied Growth Rate 10.10%
Current Price $47.62
% of Intrinsic Value 11236.95%

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 or growth 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 $1.66 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.1% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Agilent Technologies Inc revealed the company was trading above its Graham Number of $21.5. The company pays a dividend of $0.45 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 28.7, which was above the industry average of 22.64. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.42.

Agilent Technologies Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

A charts August 2016

Net Current Asset Value (NCAV) $0.42
Graham Number $21.50
PEmg 28.70
Current Ratio 3.07
PB Ratio 3.60
Current Dividend $0.45
Dividend Yield 0.93%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 7/1/2016
Total Current Assets $3,530,000,000
Total Current Liabilities $1,151,000,000
Long-Term Debt $1,652,000,000
Total Assets $7,734,000,000
Intangible Assets $2,967,000,000
Total Liabilities $3,391,000,000
Shares Outstanding (Diluted Average) 328,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.54
Oct2015 $1.20
Oct2014 $1.62
Oct2013 $2.13
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 $1.66
Oct2015 $1.88
Oct2014 $2.27
Oct2013 $2.40
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 $1.02

Recommended Reading:

Other ModernGraham posts about the company

Agilent Technologies Inc Valuation – February 2016
Agilent Technologies Inc. Valuation – October 2015 Update $A
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

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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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