Taming Agilent's Stock Price

| About: Agilent Technologies (A)

They won't come if you can't build it, and Agilent (NYSE:A) provides companies the tools they need to build it. The company focuses its efforts in three measurement related business segments: Chemical Analysis, Life Sciences and Electronic Measurement.

The company sells products primarily via direct methods, but also sells products through distributors, resellers, manufacturer's representatives, telesales and electronic commerce.

In its most recent Q4 2011 earnings call, Agilent's President and CEO, Bill Sullivan, indicated the company's results were below previous guidance as a result of currency exchange rate issues. Mr. Sullivan indicated he believes communication, petrochemical and food market segments will remain robust going forward. The company experienced strong growth in emerging markets led by growth in Asia. Growth in China and India was over 30%. Wireless manufacturing had the strongest growth with growth of over 50% during the quarter. Additionally, the company observed a significant amount of activity with respect to telecommunication companies rolling out 4G, but saw a pause in activity related to European telecommunication companies rolling out 4G.

Going forward, the company plans to focus on the communications market segment, however, the company sees growth opportunities in the Life Science market as well as in the food related market segments. Opportunities with respect to food are a result of countries such as China, India and Brazil passing and enforcing new food-related regulations. The company expects revenue in the Aerospace and Defense market segment to be flat going forward. The company also indicated plans to launch a large number of products in fiscal year 2012.

Agilent announced it is going to pay its first dividend of $0.10 on April 25 to shareholders of record at the close of business on April 3, representing an ex-dividend date of March 30, 2012.

Competitors for Agilent include Danaher (NYSE:DHR), Teradyne (NYSE:TER) and Thermo Fisher Scientific (NYSE:TMO).

Agilent's stock price has been on quite a roller coaster ride over the last two years as shown below:

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With Agilent's upcoming earnings release on Wednesday, February 15, 2012, an investor might consider toning down some of the Agilent's roller coaster ride by entering a collar. A collar may be entered by selling a call option against a stock and using some of the proceeds from selling the call option to purchase a put option for protection.

Using PowerOptions tools, a collar for Agilent was found with a potential return of 2.4% (24.3% annualized) and a maximum potential loss of 6.2%, even if the price of the stock goes to zero. The selected collar is illustrated in the table shown below:

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The specific call option to sell is the 2012 Mar 44 at $1.86 and the put option to purchase is the 2012 Mar 40 at $0.84. A profit/loss graph for one contract of the collar is shown below:

As a bonus, if the price of Agilent's stock is greater than or equal to the $44 call option strike at expiration in March, the position will return 3.2%. Additionally, if the price of the stock drops below the $40 put option strike, the value of the collar position will remain unchanged. If the price of the stock increases to the $50 range, adjustment of the collar may be considered in order to increase the potential return.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.