As already mentioned it has trailing earnings of $2.88, leading to a P/E ratio of 15.36. This is significantly below the industry average of 25.6, and is also lower than the market average of 20-25, indicating the stock is trading at a discount. Agilent’s earnings are expected to rise to $3.19 a share by 2014, leading to a forward P/E of 13.87. Over the last three years, the company’s revenue has grown by an average of ~16% year-on-year, while its net income has gone from negative to $1.013 billion, more than doubling over the past two years.
A quick look at Agilent’s books reveals some impressive data. The company has $2.519 billion in cash, more than enough to cover its short term debt of $250 million and its long term debt of $2.106 billion. It also has $2.91 billion in net working capital (current assets-current liabilities), giving it ample operating liquidity, and its NWC ratio of 2.53 is indicative of its financial strength, although it could also suggest an under-utilization of its asset base.
The company’s cash flows show that $221 million was spent on capital expenditures over the last year, and capex has been increasing since 2010, when it was at $121 million. It also generated strong free cash flows of $1.064 billion over the same period.
Comparative Analysis
Agilent Technologies has a trailing EBITDA of $1.351 million, giving us its trading multiple (market cap/EBITDA) of 11.30. We can find the enterprise value by adding the market cap of $15.26 billion with the total debt of $2.356 billion and then subtracting the cash of $2.519 billion. This gives us an EV of $15.097 billion, and consequently an EV/EBITDA of 11.17.
| Enterprise Value ($bn) | EBITDA ($bn) | EV/EBITDA TTM | |
| Agilent Technologies | 15.097 | 1.351 | 11.17 |
| Quest Diagnostics | 12.877 | 1.444 | 8.78 |
| Life Technologies Corp (NASDAQ:LIFE) | 14.889 | 1.075 | 13.85 |
| Thermo Fisher Scientific | 36.770 | 2.542 | 14.46 |
An average of these EV/EBITDA’s gives a value of 12.065, suggesting Agilent has a ~8% upside potential.
Bottom Line
Agilent faces some challenges in the near future, most notably, protecting its intellectual property, while innovative to keep up with fast technological strides. The company also will have to confront the issue of most of its cash being abroad, as it will have to pay taxes on it if it uses it to invest in its US operations. Overall, due to strong expected revenue and sales growth of ~6% over the next few years, I believe Agilent is a slight buy.
Notes: Agilent offers a small dividend of 1.02%. Additionally, the consensus on Wall Street is that Agilent will outperform the market.
The article Is This Diversified Tech Company a Buy? originally appeared on Fool.com and is written by Rupert Nicholson.
Rupert Nicholson might initiate a position in Agilent Technologies by Tuesday. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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