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Agilent Technologies (A) Up 10.6% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Agilent Technologies, Inc. (A - Free Report) . Shares have added about 10.6% in that time frame, outperforming the market.

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

Agilent Technologies Beats on Q2 Earnings & Revenues

Agilent Technologies’ fiscal second-quarter 2017 earnings per share of 59 cents beat the Zacks Consensus Estimate by 7 cents. Earnings were up 31.8% year over year.
 
Revenues
 
Agilent’s fiscal second-quarter 2017 revenues of $1.10 billion increased 3.3% sequentially and 8.1% year over year. Revenues were slightly above the management’s guided range of $1.04–$1.06 billion and the Zacks Consensus Estimate of $1.05 billion.
 
Revenue growth was supported by continued strength in Chemical & Energy business and better-than-expected growth in Pharma. Also, growth in Europe contributed to the upside.
 
Revenues by Geography
 
Asia/Pacific contributed 34% of the total fiscal second-quarter revenues and declined 2.6% sequentially but increased 7.1% year over year. Americas contributed 27% and was down 18.6% sequentially but up 6.8% year over year. Europe accounted for the remaining 39% and was up 35.8% sequentially and 10% year over year.
 
Revenues by Segment
 
Agilent now has three reporting segments — Life Sciences & Applied Markets Group (LSAG), Agilent Cross Lab Group (ACG) and Diagnostics and Genomics Group (DGG). Its Electronic Measurement Group (EMG) segment was spun off as Keysight Technologies, an independent publicly traded company. Agilent also exited the Nuclear Magnetic Resonance business after failing to meet growth and profitability goals. The company divested or shut down underperforming units to streamline operations.
 
In the reported quarter, LSAG was the largest contributor and accounted for $523 million or 47% of total revenue, reflecting an increase of 6% year over year. The increase was driven by strong performance in the pharma, food, chemical and energy markets.
 
Revenues from ACG came in at $378 million or 34% of total revenue, reflecting a growth of 9% year over year. Both services and consumables witnessed growth across all geographical regions.
 
Revenues from DGG came in at $201 million or remaining 19% of total revenue. The segment was up 13% year over year, driven by strength in pharma, diagnostic and clinical end-markets. All businesses under this group (Dako, Genomics and Nucleic Acid Solutions) performed well.
 
Margins
 
The pro forma gross margin for the quarter was 53.7%, down 8 basis points (bps) sequentially but up 171 bps year over year.
 
Operating expenses (research & development and selling, general & administrative expenses) in the quarter were $391 million, 2% lower than the year-ago quarter. As a result, adjusted operating margin of 21.8% was up 270 bps year over year.
 
Net Income
 
Agilent generated pro forma net income of $187 million or 17% of sales compared with $145 million or 13.2% a year ago. Our pro forma estimate excludes acquisition-related costs, restructuring charges, amortization of intangibles and other one-time items, as well as tax adjustments.
 
With these above-mentioned items included, GAAP net income was $164 million (50 cents per share) compared with $91 million (28 cents) in the year-ago quarter.
 
Balance Sheet
 
Exiting the fiscal second quarter, inventories were $548 million, down from $551 in the prior quarter. Agilent’s long-term debt was $1.80 billion at the end of the quarter. Cash and cash equivalents were $2.39 billion compared with $2.24 billion in the prior quarter.
 
Net cash provided by operating activities was $257 million and capital expenditure was $43 million.
 
In the quarter, the company paid $43 million in dividends and repurchased 1.64 million shares for $83 million.
 
Guidance
 
Agilent provided guidance for fiscal third-quarter and fiscal 2017.
 
For the fiscal third quarter, Agilent expects revenues between $1.06 billion and $1.08 billion, and non-GAAP earnings per share in the range of 49–51 cents. Analysts polled by Zacks expect revenues of $1.08 billion and earnings of 53 cents per share.
 
For fiscal 2017, Agilent projects revenues in the range of $4.36–$4.38 billion and non-GAAP earnings per share in the range of $2.15–$2.21. Analysts polled by Zacks expect earnings of $2.15 per share and revenues to the tune of $4.35 billion.
 
Recommendation
 
Agilent delivered strong fiscal second-quarter 2017 results, with both the top and the bottom line surpassing the Zacks Consensus Estimate.
 
The company’s decision to divest/wind up underperforming businesses has enhanced its focus on the new Agilent, while enabling expansion of the recurring revenue base and diversification of geographic and industrial operations for growth. Also, the company’s focus on aligning investments in order to be oriented toward more attractive growth avenues and innovative product launches is a positive.
 
Additionally, we remain positive on Agilent’s broad-based portfolio and increased focus on segments with higher growth potential. Further, the company continues to introduce high-margin products. Foreign currency headwinds may hurt revenues and profits, but the company seems prepared to counter them.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter.

VGM Scores

At this time, the stock has a nice Growth Score of B, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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