Agilent stock outlook improved by cost actions, but challenges remain - Evercore ISI

On Thursday, Evercore ISI adjusted its price target for Agilent Technologies Inc. (NYSE:A), increasing it to $135 from the previous $130, while maintaining an In Line rating on the stock.

The revision follows Agilent's reported total revenues of $1.578 million, which showed an organic decline of 4.5% but still performed slightly better than Street expectations by approximately 130 basis points.

The financial firm noted that the modest revenue outperformance was driven by several factors. The pharmaceutical sector's decline was less than anticipated, China's revenue drop was not as steep as expected, and the North American market met projections with a quarter-over-quarter revenue decline that was anticipated.

The company's performance was also bolstered by a stronger showing in biopharma, diagnostics, and environmental sectors, although weaker results in the food and chemical markets partly offset this.

Agilent's earnings per share (EPS), which fell by 7% year-over-year, surpassed Street estimates by roughly 480 basis points, helped by a new $100 million cost-saving program. Management has also adjusted its revenue and EPS guidance for the fiscal year upwards, though the fourth-quarter guidance is slightly below Street estimates, which Evercore ISI suggests may be a conservative stance.

Looking at the company's segments, instruments, which account for 35% of revenues, showed a low double-digit decline in the third quarter. However, a book-to-bill ratio greater than one indicates some stabilization in capital expenditure environment.

Consumables and services, making up about 45% of revenues, have seen mid-single-digit growth, with expectations of this trend continuing. Diagnostics and genomics are projected to face high single-digit declines for the fiscal year 2024.

Evercore ISI anticipates Agilent to grow in the low single digits for the fiscal year 2025, supported by an approximate 75 basis point improvement in operating margins and benefits from share repurchases. This is expected to lead to around 7% EPS growth, taking into account contributions from the BioVectra acquisition. This forecast is slightly more conservative than the Street's current model of approximately 9.5% EPS growth.

The firm has slightly increased its fiscal year 2025 EPS estimate from $5.60 to $5.64, but maintains a neutral position due to the current setup and valuation. The updated $135 price target reflects around 23 times calendar year 2025 P/E, 19 times EBITDA, and approximately a 4% free cash flow yield.

In other recent news, Agilent Technologies Inc. has reported impressive third quarter results, surpassing analysts' expectations. The company posted adjusted earnings of $1.32 per share, exceeding the estimated $1.26 per share.

Furthermore, Agilent reported revenue of $1.58 billion, slightly above the projected $1.56 billion. Following these results, Citi has increased its price target for Agilent to $165, maintaining a Buy rating on the stock.

Agilent has also revised its full-year 2024 outlook upwards, now forecasting revenue of $6.45 billion to $6.5 billion and adjusted earnings per share of $5.21 to $5.25.

The company's Life Sciences and Applied Markets Group, however, saw an 8% YoY revenue decline to $782 million in Q3. On a brighter note, the Agilent CrossLab Group reported a 4% revenue growth to $411 million.

While the company continues to focus on strategic transformation initiatives for margin expansion and execution capabilities improvement, the management anticipates growth to pick up pace throughout the next fiscal year. These are recent developments and further updates will follow as they occur.

InvestingPro Insights

As Agilent Technologies Inc. navigates through its fiscal challenges and opportunities, recent data from InvestingPro provides a deeper look into the company's financial health. With a market capitalization of $40.84 billion and a trailing twelve-month P/E ratio of 31.23, Agilent is trading at a higher earnings multiple, which aligns with Evercore ISI's valuation assessment. The company's commitment to shareholder returns is evident with management's aggressive share buyback strategy, as mentioned in one of the InvestingPro Tips. This could be a contributing factor to the stock's low price volatility, another characteristic highlighted by InvestingPro.

Agilent's ability to maintain dividend payments for 13 consecutive years, despite the revenue declines, suggests a stable financial footing. This is further supported by a gross profit margin of over 50% in the last twelve months as of Q2 2024. The company's liquid assets also exceed short-term obligations, indicating a solid liquidity position, which is crucial for weathering any short-term economic headwinds. For investors seeking additional insights, InvestingPro offers a suite of further tips, with more than 10 additional InvestingPro Tips available to help guide investment decisions.

As the company looks ahead to its next earnings date on August 21, 2024, investors will be keen to monitor whether Agilent's strategic initiatives and market conditions will align to support the conservative growth and margin improvements anticipated by Evercore ISI. With the InvestingPro Fair Value estimated at $119.06, compared to the analyst target of $146, investors are provided with a range to consider when evaluating the stock's potential.

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