AGILENT TECHNOLOGIES INC. $41(New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 348.0 million; Market cap: $14.3 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.0%; TSINetwork Rating: Average; www.agilent.com) makes testing systems that help improve electronic products, such as cellphones and computer equipment.
To cut its exposure to the cyclical electronics industry, Agilent is expanding its medical and drug-testing businesses, mainly through acquisitions. In May 2010, it paid $1.5 billion for Varian Inc., which makes testing equipment for medical research labs.
As well, the company recently announced that it will pay $2.2 billion for Dako, a Denmark-based firm that makes equipment that detects cancers in blood and other tissue samples. Thanks to deals like these, medical- and chemical-testing equipment now supplies half of Agilent’s overall sales.
Buying Varian made a big difference
Agilent’s sales rose 6.5%, from $5.4 billion in 2007 to $5.8 billion in 2008 (fiscal years end October 31). Electronics demand fell during the recession, and many of Agilent’s customers bought less testing equipment in response. As a result, sales fell 22.4% in 2009, to $4.5 billion. However, sales rebounded to $5.4 billion in 2010 and reached $6.6 billion in 2011.
Agilent’s earnings rose 13.6%, from $610 million in 2007 to $693 million in 2008. Earnings per share jumped 24.7%, from $1.50 to $1.87, on fewer shares outstanding. The company lost $31 million, or $0.09 a share, in 2009, but earnings turned around in 2010 and climbed to $1.77 a share (or a total of $624 million). Varian’s contribution pushed up earnings to $2.85 a share (or $1.0 billion) in 2011.
Agilent continues to make progress integrating Varian. Overall, it aims to cut its yearly costs by $100 million by 2014, mainly by combining administrative functions and sharing technology between its divisions.
Electronics business growing quickly
Agilent is also buying firms that add to its electronics- testing expertise. For example, it recently paid an undisclosed sum for Accelicon Technologies, whose software helps technology firms test new chips.
Agilent’s purchases are also expanding its geographic reach. International markets, mainly in Asia, now supply 70% of its sales.
As well, the company continues to spend heavily on developing new products. Its research spending rose 6.0% in fiscal 2011, to $649 million (or 9.8% of sales) from $612 million (or 11.2% of sales) in 2010.
Agilent can easily afford to keep making acquisitions and spending more on research. It holds cash of $3.9 billion, or $11.20 a share. Its long-term debt of $1.9 billion is a low 13% of its market cap.
New dividend and low p/e add appeal
Thanks to its improving outlook, Agilent recently started paying a quarterly dividend of $0.10 a share. The annual rate of $0.40 yields 1.0%. Agilent trades at just 12.8 times the $3.20 a share it should earn in fiscal 2012. That’s a particularly low p/e ratio in light of its strong growth prospects and high research spending.
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