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.  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 specific look at how Agilent Technologies fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Agilent Technologies, Inc. (Agilent) is a measurement company providing bio-analytical and electronic measurement solutions to the communications, electronics, life sciences and chemical analysis industries. During the fiscal year ended October 31, 2011 (fiscal 2011), it had three business segments: electronic measurement business, chemical analysis business and life sciences business. Its electronic measurement business addresses the communications, electronics and other industries. Agilent’s chemical analysis business focuses on the petrochemical, environmental, forensics and food safety industries. Its life sciences business focuses on the pharmaceutical, biotechnology, academic and Government, bio-agriculture and food safety industries. In addition to its three businesses, it conducts research through Agilent Technologies Laboratories (Agilent Labs). In June 2012, the Company acquired cancer diagnostics company, Dako. In August 2012, the Company acquired Aurora SFC Systems, Inc.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| Recent Price | $56.36 |
| MG Value | $99.64 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $39.78 |
| Value Based on 0% Growth | $23.32 |
| Market Implied Growth Rate | 6.02% |
| Net Current Asset Value (NCAV) | -$0.36 |
| PEmg | 20.54 |
| Current Ratio | 3.28 |
| PB Ratio | 3.46 |
Balance Sheet – 1/31/2014
| Current Assets | $5,073,000,000 |
| Current Liabilities | $1,549,000,000 |
| Total Debt | $2,695,000,000 |
| Total Assets | $10,638,000,000 |
| Intangible Assets | $3,876,000,000 |
| Total Liabilities | $5,194,000,000 |
| Outstanding Shares | 334,000,000 |
Earnings Per Share
| 2014 (estimate) | $3.06 |
| 2013 | $2.10 |
| 2012 | $3.27 |
| 2011 | $2.85 |
| 2010 | $1.94 |
| 2009 | -$0.09 |
| 2008 | $1.87 |
| 2007 | $1.57 |
| 2006 | $3.26 |
| 2005 | $0.28 |
| 2004 | $0.71 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $2.74 |
| 2013 | $2.39 |
| 2012 | $2.35 |
| 2011 | $1.80 |
| 2010 | $1.42 |
| 2009 | $1.24 |
Dividend History
A Dividend data by YCharts
Conclusion:
Agilent Technologies is a very intriguing company for Enterprising Investors, having passed all five of the investor type’s requirements.  The company does not quite qualify for the Defensive Investor due to the lack of earnings stability over the ten year period, short dividend history and the high PEmg and PB ratios.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company but should also compare it to other opportunities through a review of 5 Low PEmg Companies for the Defensive Investor and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the company looks significantly undervalued after having grown its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $2.74 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 6.02% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Agilent Technologies (A)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in Agilent Technologies (A) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from wikipedia; this article is not affiliated with the company in any manner.
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