After looking at Agilent Technologies Inc’s (NYSE:A) latest earnings announcement (30 April 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.
Did A perform worse than its track record and industry?
A’s trailing twelve-month earnings (from 30 April 2018) of US$237.00m has more than halved from US$462.00m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -18.26%, indicating the rate at which A is growing has slowed down. Why is this? Well, let’s look at what’s going on with margins and whether the entire industry is experiencing the hit as well.
Although revenue growth over the past few years, has been negative, earnings growth has been deteriorating by even more, meaning Agilent Technologies has been ramping up its expenses. This harms margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US life sciences industry has been growing its average earnings by double-digit 11.62% in the previous twelve months, and 19.67% over the previous five years. This growth is a median of profitable companies of 24 Life Sciences companies in US including Waters, Bruker and PerkinElmer. This suggests that whatever uplift the industry is enjoying, Agilent Technologies has not been able to reap as much as its industry peers.
In terms of returns from investment, Agilent Technologies has not invested its equity funds well, leading to a 5.13% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 3.22% is below the US Life Sciences industry of 6.28%, indicating Agilent Technologies’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Agilent Technologies’s debt level, has increased over the past 3 years from 6.61% to 12.31%.
What does this mean?
Agilent Technologies’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that endure a drawn out period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry expansion and disruption. I recommend you continue to research Agilent Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for A’s future growth? Take a look at our free research report of analyst consensus for A’s outlook.
- Financial Health: Are A’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 April 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.