Agilent Technologies Raises Guidance, So What?
Agilent Technologies (NASDAQ: A) had a good quarter in FQ2, and calendar Q1, but there is one glaring problem with the report. The company’s results are good, and the outlook is good, but it’s all priced into the stock, and the stock is still trading at over 25X its earnings. The average S&P 500 company is trading about 40% below that level and yielding a much larger 1.47% which makes us think the downtrend may not be over. Agilent is a good company and proving nimble in today’s environment but there are other tech plays with lower values and higher yields to focus on now. The takeaway is that we don’t think Agilent is at the bottom quite yet, but we think it might be close.
Agilent Beats And Raises Guidance On Core Strength
Agilent did not have a bad quarter, far from it, but the valuation and market conditions have the stock in a downtrend and these results are not going to end that by themselves. The company reported $1.61 billion in net revenue for a gain of 5.2% over last year. The mid-single-digit gain is OK enough but missed the Marketbeat.com consensus by 62 basis points. The gain was driven primarily by the DGG segment which grew by 14% and was offset by smaller 7% and 2% gains in the LGAG segment. LGAG is the largest segment by far and accounts for 55% of quarterly revenue and had an outsized impact on the net results.
Moving down to the income, the company was able to improve margin at both the net and operating levels. The net margin expanded by 310 basis points while the operating margin expanded by a slightly smaller 300 basis points to drive solid bottom-line results but this was already priced in as well. The company's $1.13 in adjusted EPS is up 16% and beat the consensus but by a penny. The takeaway is that margins were a little better than expected, revenue a little worse, and the net result is earnings that are more or less in line with the consensus and the guidance is the same.
Agilent execs were confident enough in the results to raise the guidance but to ranges in-line with the Marketbeat.com consensus figures. The bias, however, is to the downside because the guidance is bracketing the consensus figure with the consensus figure right at the high end. Agilent will have to perform at the high end of its expectations just to meet the market's expectations and that is a high bar to beat. The takeaway here is that business is sound but not enough to inspire a rally.
The Analysts Are Still Buying Agilent
The 12 analysts rating Agilent Technologies have it pegged at a firm Buy and at least one of them has released commentary in the wake of the Q2 results. Analysts from Robert W. Baird maintained an Outperform rating but raised the price target to $161. This is in line with the broader Marketbeat.com consensus of $162.90 which is 34% above the current price action. The consensus figure is down over the past 90 days but flat over the last 30.
The Technical Outlook: Agilent Might Be Bottoming
Agilent Technologies might be bottoming at this level but it is still in the bottoming pattern if it is. The pattern we are watching is a possible Head & Shoulders Reversal that is only now forming the second shoulder. If price action is able to find support in the $118 to $121 range we see the market forming a trend change that will probably lead to sideways, rangebound trading over the next few months at least. If, however, price action continues to fall and retest the current low there is a chance of lower prices over the summer.
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