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Agilent (A) Up 11.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Agilent Technologies (A). Shares have added about 11.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Agilent due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Agilent Earnings and Revenues Beat Estimates in Q3

Agilent Technologies’ fiscal third-quarter 2019 earnings of 76 cents per share surpassed the Zacks Consensus Estimate by 4 cents. The bottom line increased 7% sequentially and 13% year over year.

Fiscal third-quarter 2019 revenues of $1.27 billion increased 6% year over year (up 6% on a core basis). Also, reported revenues, which came in above management’s guided range of $1.225-$1.245, surpassed the Zacks Consensus Estimate of $1.239 billion.

The year-over-year revenue growth was driven by strength in the pharma, diagnostics, environmental and forensics markets.

During the quarter, Agilent entered into a definitive agreement to acquire Winooski, VT-based BioTek Instruments, Inc., a provider of life science instrumentation, in a bid to expand presence in the life science research space.

The deal will strengthen Agilent’s offerings related to live cell analysis as these product lines aid in quantification of biomolecules, biomolecular interactions and cellular structure.

Revenues by Segment

Agilent has three reporting segments — Life Sciences & Applied Markets Group (LSAG), Agilent Cross Lab Group (ACG) and Diagnostics and Genomics Group (DGG).

In the reported quarter, LSAG was the largest contributor to total revenues. The segment accounted for $544 million or 43% of its total revenues, reflecting an increase of 1% from the prior-year quarter. The demand in pharma, environmental and forensics markets was strong, offset by weakness in the food market.

Revenues from ACG came in at $467 million, accounting for 37% of total revenues, reflecting a 10% year-over-year increase, driven by growth across all regions and market segments.

Revenues from DGG came in at $263 million, accounting for the remaining 20% of total revenues. The segment’s revenues were up 11% from the year-ago quarter, led by strength in the company’s Nucleic Acid Solutions Division, diagnostics and clinical markets.

Operating Results

Gross margin in the quarter was 54.3%, down 50 basis points (bps) year over year. The decrease was due to an unfavorable product mix.

Operating expenses (research & development as well as selling, general & administrative) were $467 million, 6.6% higher than the year-ago quarter.

As a result, adjusted operating margin was 17.7%, down 70 bps from the year-ago quarter.

Balance Sheet

At the end of the fiscal third quarter, inventories totaled $660 million, up from $657 million in the prior quarter. Agilent’s long-term debt was $1.3 billion at the end of the quarter. Cash and cash equivalents were $1.8 billion compared with $2.2 billion in fiscal second-quarter 2019.

Guidance

Agilent provided guidance for the fiscal fourth quarter and revised the same for fiscal 2019.

For the fiscal fourth quarter, the company expects revenues between $1.31 billion and $1.33 billion, and earnings per share in the range of 84-86 cents. 

For fiscal 2019, Agilent has increased the revenue projection in the range of $5.105-$5.125 billion versus the previous expectation of $5.085-$5.125 billion. Non-GAAP earnings projection is now in the range of $3.07-$3.09 per share versus the previous expectation of $3.03-$3.07.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Agilent has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Agilent has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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