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The Street is salivating over Agilent Technologies (NYSE:A) and Danaher (NYSE:DHR), rating them both "strong buys". Both firms have fairly strong free cash flow yields and are structurally well positioned to gain from a recovery. Momentum from recent execution only further reinforces the bullish outlook.

From a multiples perspective, Agilent is the cheaper of the two. It trades at a respective 15.4x and 12.6x past and forward earnings, with a dividend yield of 0.9%. Danaher, on the other hand, trades at a respective 18.7x and 14.1x past and forward earnings, with a dividend yield of 0.2%. Agilent also has a free cash flow yield that is 70 bps higher at 7%.

At the fourth quarter earnings call, Danaher's management noted excellent progress for the year:

2011 was another outstanding year for Danaher. For the full year, we saw high single-digit core revenue growth, core margin expansion of 160 basis points, adjusted earnings per share growth north of 25% and $2.4 billion of free cash flow. However, the numbers only tell part of the story. During the year, we continued to capture market share through both innovative new product introductions and our go-to-market initiatives. For the first time in 2011, our R&D spend exceeded $1 billion. And this continued investment has played a significant part in the share gains at many of our businesses, including Videojet, Leica, AB SCIEX, Hach and ChemTreat. In 2011, we significantly improved the Danaher portfolio. We announced or closed 17 acquisitions during the year, most notably of course Beckman Coulter and Esko, while at the same time transitioning out some of our legacy businesses that were no longer considered significant core growth opportunities for us.

EPS of $0.71 was strong even after accounting for $120M worth of restructuring. It was particularly impressive how management grew margins by a staggering 200 bps y-o-y during the quarter. And while organic growth was modest in 2011, the Beckman Coulter integration is proving to be more of catalyst than what many expected. The purchase is well on its way to realizing the $250M cost synergy target for 2012 and being accretive shortly. I anticipate 100 bps margin improvement just from the acquisition. Furthermore, Danaher also is one of the most defensive plays among technical instrument producers. It has 40% less volatility than Agilent, for example. On the other hand, the exposure to Europe limits earnings potential.

Consensus estimates for Danaher's EPS forecast that it will grow by 16.6% to $3.30 in 2012 and then by 11.8% and 12.5% in the following two years. Assuming a multiple of 15x and a conservative 2013 EPS of $3.63, the rough intrinsic value of the stock is $54.45, implying 5.3% upside. Agilent similarly had a successful recent quarter. Orders grew 4% to an impressive $1.8B and earnings per share of $0.84 beat guidance. The firm has one of the most diversified portfolio of products and is particularly well-positioned in life-sciences. Agilent is expected to outperform in organic growth, R&D and margin expansion. The flexible cost base grants it some insulation against cyclical economic weaknesses.

Consensus estimates for Agilent's EPS forecast that it will accelerate, growing by 7.8% to $3.18 in 2012 and then by 9.1% and 10.4% in the following two years. Assuming a multiple of 15x and a conservative 2013 EPS of $3.37, the rough intrinsic value of the stock is $50.55, implying 15.5% upside.

Source: Why Agilent and Danaher Are Loved By Wall Street