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Agilent (A) Up 9.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Agilent Technologies (A - Free Report) . Shares have added about 9.9% 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 drivers.

Agilent's Q2 Earnings Beat Estimates, Revenues Down Y/Y

Agilent Technologies’ reported second-quarter fiscal 2020 earnings of 71 cents per share that beat the Zacks Consensus Estimate by 22.4% but remained flat on a year-over-year basis.

Core revenues decreased 3.3% year over year (down 2% including forex effect) to $1.20 billion.

Americas, Asia-Pacific and Europe accounted for 37%, 36% and 27% of revenues in the reported quarter. Moreover, 60% of revenues were generated from Consumer Services Informatics. Instruments contributed the remaining 40% of revenues.

In terms of major markets, Analytical Laboratory generated 84% of second-quarter top line. Dx & Clinical accounted for the remaining 16%.

Segment Top-line Details

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 $485 million or 40.5% of its total revenues, down 8.3% year over year negatively impacted by the coronavirus outbreak.

Revenues from ACG came in at $449 million, accounting for 37.5% of total revenues. However, the top line declined 1.3% year over year. Except Pharma and Environmental & Forensics all other markets declined due to coronavirus-related headwinds.

ACG grew in the high-single-digit range in China as customers began to return to more normal operations post coronavirus relaxations.

DGG revenues increased 3.5% year over year to $263 million, accounting for the remaining 22% of total revenues. The segment benefited from continued strong Pharma results.

Notably, the U.S. FDA approved use of Agilent’s Dako Omnis platform to deliver PD-L1 IHC 22C3 pharmDx as a companion diagnostic to identify patients with non-small cell lung cancer, who are appropriate for first-line monotherapy with Merck’s KEYTRUDA.

Operating Results

In the quarter under review, LSAG gross margin contracted 250 basis points (bps) on a year-over-year basis to 58.1% due to lower volumes.

DGG gross margin expanded 30 bps on a year-over-year basis to 55.1%. ACG gross margin also expanded 120 bps to 52.5%.

GAAP gross margin was 53.1%, down 100 bps year over year.

Operating expenses (research & development as well as selling, general & administrative) were $555 million, up 22.5% year over year.

As a result, GAAP operating income declined 52.8% year over year to $102 million.

LSAG segment operating income declined 8.4% year over year to $98 million.

DGG segment operating income increased 16.3 on a year-over-year basis to $57 million. ACG operating income was $122 million, up 6.1% year over year.

Balance Sheet

As of Apr 30, 2020, Agilent’s cash and cash equivalents were $1.32 billion, while total debt was $2.49 billion.

Operating cash flow was $313 million in the reported quarter. Agilent paid $55 million in dividends and repurchased 1.66 million shares for $126 million.

Outlook

Agilent withdrew its fiscal 2020 guidance in mid-April due to uncertainty surrounding the duration and severity of the coronavirus pandemic and its negative impact on economy. The company didn’t provide third-quarter guidance due to lack of visibility.

Nevertheless, Agilent anticipates China’s economic recovery will be much faster compared with rest of the world. The company also expects Pharma and contracted services to remain resilient.

Agilent expects revenues to decline between 5% and 15% on a core basis.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months.

VGM Scores

Currently, 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 C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

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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