However, Thermo Fisher Scientific Inc. (NYSE:TMO) does have some upside. This is the company with the largest sales force in the segment and the widest range of product offerings. With a healthy balance sheet, the firm´s revenue per share has been consistently increasing, usually at over 10% each year since 2003, when the company offered $12.89 to 2012´s $34.39.
The same can be said about its operating margin, currently at one of its historical highs at 11.8%, situating itself comfortably above the industry´s median 5.9%. The recent acquisition of
Life Technologies Corp. (NASDAQ:LIFE)
should boost the company’s existing product portfolio and consequently, its revenue.
Opportunities to widen margins
The Varian (2010) and Dako (2012) acquisitions have considerably widened Agilent´s product range and amplified its exposure to the life science business, while diminishing the company’s dependence on the more unstable EMG sector. Despite some early setbacks, a renewed product offering and enhanced logistics are expected to result in enlarging margins in the Life Science Group (LSG) and the Chemical Analysis Group (CAG) over the next couple of years.
These two aforementioned groups are responsible for approximately 20% of Agilent´s total income, having provided around $1.6 billion each during fiscal year 2012. This steady contribution provides stability to the company, while an exposure to instrument sales of about 60% offers great upside prospects.
Concerning operating margins, the LSG and the CAG segment offered 14.5% and 21.7% during 2012, respectively and are expected to increase to 19.4% and 22.6%, respectively, by fiscal year 2015.
Positioned to compete in life sciences and chemical analysis
A proprietary survey conducted upon 74 laboratory directors suggests that Agilent Technologies Inc. (NYSE:A)´s relative position to compete in the aforementioned areas should persist and increase over the next few years. As the leading company in gas chromatography (with 42.9% of the market share upon surveyed labs) and a top player in high-performance liquid chromatography (HPLC) with market share poised to increase (according to the survey), growth opportunities multiply.
Competition also looks promising in the EMG sector. Customers were satisfied with Agilent´s services and repeatedly remarked several reasons to believe in the company’s growth. For starters, well designed but well priced products offer value for money while providing durability and long term functionality. Added to this, they highlighted the wideness of the product offering and the excellent customer service. When questioned, most customers manifested their intentions to keep on purchasing Agilent products.
Conclusion
Agilent Technologies Inc. (NYSE:A) trades at compelling multiples and offers several reasons to believe that it will perform well in the coming years. In terms of valuation, the stock is trading at just 13.9x earnings compared to peers Thermo Fisher Scientific Inc. (NYSE:TMO)’s 23x P/E and Waters’ 18x P/E.
Thermo Fisher has a market cap of $28 billion and a P/S of 2.3x, which is higher than Agilent’s 2.1x sales. Agilent is more diversified and I think it has more upside than Thermo.
Waters trades at much overvalued multiples than Agilent: 5.62x P/BV as against Agilent’s 2.82x, and P/S of 4.43x as against Agilent’s 2.14x.
I think that emerging markets growth, quality management, and a broad recovery should help Agilent perform very well in the coming years. These facts, combined with reduced expectations (reflected in valuation multiples), make me believe that Agilent is a top investment candidate.
The article Why You Should Take a Look at This Stock originally appeared on Fool.com is written by Victor Selva.
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