This stock has established a strong niche in specialized testing equipment since it was spun off from Hewlett Packard in 2000.
The company has acquired several related businesses and also invests heavily in research to develop its own equipment. It has enjoyed steadily rising revenue and earnings in the past five years. The company should add to those profits with special equipment for the cannabis industry, which should help improve the quality of the product and maximize yields.
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AGILENT TECHNOLOGIES INC., $67.72, (New York symbol A; Shares outstanding: 318.8 million; Market cap: $21.6 billion, www.agilent.com) makes specialized testing equipment, like mass spectrometers, for medical research laboratories and industrial clients.
In 2000, the old Hewlett-Packard set up Agilent as the owner of its testing equipment business, and then spun Agilent off—that is, handed it out to its own shareholders as a special dividend. Since then, Agilent has completed two spinoffs of its own: Verigy (in 2006), a maker of computer chip testing gear; and Keysight (in 2014), focused on products for testing electronic equipment.
Agilent’s revenue rose 2.9%, from $6.8 billion in 2013 to $7.0 billion in 2014 (fiscal year ends October 31). Earnings rose 3.4%, from $995 million to $1.03 billion; because it had fewer shares outstanding, its earnings per share rose 5.6%, from $2.88 to $3.04.
In November 2014, Agilent spun off its Keysight subsidiary and gave its shareholders one Keysight share for every two Agilent shares they held.
Due to acquisitions, Agilent’s revenue rose 10.7%, from $4.0 billion in 2015 to $4.5 billion in 2017. Earnings jumped 31.6%, from $586 million in 2015 to $768 million in 2017. Per-share earnings rose 35.6%, from $1.74 to $2.36.
In its fiscal 2018 fourth quarter, ended October 31, 2018, the company earned $262 million for the. That’s up 20.2% from $218 million a year earlier. Due to fewer shares outstanding, earnings per share increased at a slightly faster rate of 20.9%, to $0.81 from $0.67.
Those amounts exclude several unusual items such as costs to integrate new businesses and changes to the U.S. tax code. On that basis, the latest earnings beat the consensus estimate of $0.74.
Revenue in the quarter rose 8.8%, to $1.29 billion from $1.19 billion. That also beat the consensus forecast of $1.26 billion.
In addition to acquisitions of related businesses, Agilent continues to invest heavily in developing its own products. Its research costs in the latest quarter rose 16.9%, to $104 million (or 8.0% of revenue) from $89 million (or 7.5%) a year earlier.
Among its new products are mass spectrometers that detect and verify the active ingredients in cannabis. Those machines can also measure the composition of soil and fertilizers used to grow cannabis. That will help producers improve the quality of their products, and maximize crop yields.
The outlook for this equipment is bright, as legalization will force growers to monitor the quality of their cannabis and keep out unhealthy contaminants. As well, pharmaceutical makers and medical research labs are stepping up their studies into the effectiveness of cannabis as a treatment for pain and various diseases.
Agilent also stands to gain from ongoing sales of replenishable supplies and software updates. Services now account for about 25% of its total revenue.
The company expects to earn between $3.00 and $3.05 a share for all of fiscal 2019. The stock trades at 22.4 times the midpoint of that range. That’s a reasonable multiple in light of its high level of research spending.
Agilent also now plans to buy back up to $1.75 billion of its shares, or 8% of its $21.6 billion market cap. There are no time limits for those purchases. The $0.596 dividend yields 0.9%.
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