ModernGraham Valuation Of Agilent Technologies

Jan. 2.14 | About: Agilent Technologies (A)

Here is a look at how Agilent Technologies (NYSE:A) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  3. Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record - has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability - positive earnings per share for at least 5 years - FAIL
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $87.70
MG Opinion Undervalued
Value Based on 3% Growth $34.72
Value Based on 0% Growth $20.35
Market Implied Growth Rate 7.72%
Net Current Asset Value (NCAV) -$1.25
PEmg 23.94
Current Ratio 3.11
PB Ratio 3.61
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Balance Sheet - 9/30/2013

Current Assets $4,983,000,000
Current Liabilities $1,602,000,000
Total Debt $2,699,000,000
Total Assets $10,686,000,000
Intangible Assets $4,133,000,000
Total Liabilities $5,400,000,000
Outstanding Shares 333,000,000
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Earnings Per Share

2013 $2.10
2012 $3.27
2011 $2.85
2010 $1.94
2009 -$0.09
2008 $1.87
2007 $1.57
2006 $3.26
2005 $0.28
2004 $0.71
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Earnings Per Share - ModernGraham

2013 $2.39
2012 $2.35
2011 $1.80
2010 $1.42
2009 $1.24
2008 $1.78
Click to enlarge

Conclusion:

Agilent Technologies Inc. is a company that seems to have turned the corner from a poor year during the recession to have some positive potential for the future. The company is not suitable for the Defensive Investor because of its lack of a long dividend history, lack of stable earnings, and high PEmg and PB ratios. However, it is suitable for the Enterprising Investor after only failing the requirement that it have positive earnings for at least 5 years. Enterprising Investors should feel comfortable continuing with further research, including a review of the ModernGraham valuation of General Electric (NYSE:GE). From a valuation side of things, the company's EPSmg (normalized earnings) grew from $1.24 in 2009 to $2.39 for 2013. This level of growth outpaces the market's implied estimate of 7.72%, and as a result the company appears to be undervalued at the current time.

What do you think? Do you agree that Agilent Technologies Inc. is undervalued? What would be your assessment? Is the company suitable only for Enterprising Investors?

Disclosure: The author did not hold a position in Agilent Technologies (A) at the time of publication and had no intention of changing that position within the next 72 hours.