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Strong Product Portfolio Aids Agilent (A), Risks Persist

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On May 16, we issued an updated research report on Agilent Technologies A. The stock carries a Zacks Rank #3 (Hold).

Growth Drivers

Technology firm, Agilent’s top-line growth is benefiting from expanding product portfolio, end-market strength, and robust performance in China and Europe.

Agilent’s strong business portfolio serves as another growth driver. The company has been consistently introducing new and improved products that added to its vastly differentiated product pipeline. Generally, the launch of new platforms and acceptance of new standards indicate significant testing opportunity. Moreover, Agilent’s leadership position ensures top-line growth.

Since the past few years, strategic acquisitions have been playing an important role in shaping Agilent’s growth trajectory. The buyouts of Genohm (May 2018), Lasergen (April 2018), Advanced Analytical Technologies (March 2018), Multiplicom NV (January 2017), Cobalt Light Systems (July 2017), Seahorse Bioscience and iLab Solutions (2016) have expanded its product portfolio. All these buyouts have strengthened Agilent’s portfolio and increased focus on the segments with higher growth potential.

Also, Agilent has entered into a number of strategic partnerships, helping it to expand its top-line growth. Last month, the company collaborated with BioTek Instruments to develop a new integrated solution that combines cellular metabolic analysis with imaging technologies. The solution will enhance the assay workflow and normalize XF measurements. Agilent has also collaborated with many companies in the field of companion diagnostics. Currently, the healthcare sector is undergoing a revolution and companion diagnostics or personalized medicine is taking the center stage as it can improve patient care and better manage healthcare costs by administering the most appropriate treatment to individuals.

Moreover, Agilent’s expansion in China is a big positive. Agilent makes test equipment that is required by manufacturers. Therefore, the company’s strong market position and customer relationships in China are long-term drivers of the business. Chinese stimulus plans have fueled growth in the past, and laws passed by the Chinese government regarding food safety and environmental testing offer additional growth opportunities for Agilent.


Price Performance: Agilent underperformed its industry in the past year. Shares of the company have declined 10.9% in the past year, underperforming the industry’s gain of 17%.

Agilent’s operating margin remains challenged. While expenses appear to be mainly focused on the SG&A side, R&D is also on the rise. Moreover, the increase has been so significant that margins did not show any noticeable increment despite strong growth in all the reporting segments.

Furthermore, though acquisitions are part of Agilent’s growth strategy, unsuccessful execution and integration of new buyouts and an increase in acquisition costs due to stiff competition are likely to negatively impact its sales/margin performance.

Stocks to Consider

Some better-ranked stocks in the technology sector are Littelfuse, Inc. LFUS, sporting a Zacks Rank #1 (Strong Buy), and SMC Corporation (SMCAY - Free Report) and, Inc. AMZN, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for Littelfuse, SMC and Amazon is projected at 12%, 13.7% and 30.2%, respectively.

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