Agilent Technologies Hitting Lower Rail Of Upwardly Sloped Trend Channel Ahead Of Earnings

About: Agilent Technologies, Inc. (A)
by: Rick Pendergraft

Agilent Technologies is scheduled to report fiscal third quarter earnings results on Wednesday.

The company has performed well with above-average fundamental measurements.

There is a trend channel on the chart, and the stock is just above the lower rail at this time.

Sentiment toward the stock is slightly skewed to the optimistic side.

To me, Agilent Technologies (NYSE:A) is a very interesting company. It is a healthcare company, but it is also part technology company. In fact, Yahoo Finance labels the company as a healthcare company while Investor's Business Daily labels the company as an electronics company within the scientific measuring group. The Santa Clara-based firm is set to report earnings after the closing bell on Wednesday, and analysts are expecting modest growth on a year-over-year basis.

Analysts expect Agilent to report $0.72 per share for the fiscal third quarter, and that would mean a 7.5% increase compared to the third quarter of 2018. Over the last three years, the company has been able to grow earnings at a rate of 18% per year. Earnings were up 9% in the second quarter, and they are expected to increase by 9% for the year as a whole.

Revenue is expected to come in at $1.24 billion, and that is a 3% increase over the third quarter of '18. Over the last three years, the company has seen revenue increase by 8% per year, and it was up 3% in the second quarter.

Looking at the management efficiency measurements for Agilent, we see figures that are above average. The return on equity is at 22.93%, the profit margin is at 22.5%, and the operating margin is at 19.9%.

Overall, the fundamentals for Agilent are well above average. The EPS Rating from Investor's Business Daily is an 81, and the SMR Rating is an A. That puts the company in the top 20% of all companies in their database for earnings growth, sales growth, profit margin, and return on equity.

The Chart Shows a Stock That is Trending Higher Within an Upward Sloped Channel

Looking at the weekly chart for Agilent, we see an upward trend with a channel that defines the various cycles within the overall trend. The lower rail connects the lows from last October and last December. The stock just hit that lower rail in the past week and bounced higher. The upper rail connects the highs from the first quarter of 2018 and the first quarter of 2019.

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We see that the stock just dropped below its 104-week moving average when it dropped early last week. It also dropped below this 2-year trend line briefly last December and again in May. The 104-week seems to be providing a certain amount of support for the stock at this time.

The weekly overbought/oversold indicators are down, but neither is in oversold territory. The 10-week RSI hasn't been in oversold territory at any point in the last three and a half years, but dips below the 50-level have generally been decent buying points for the stock.

I think the pattern in the weekly stochastic readings is interesting in that it is very similar to what we saw in the fourth quarter of last year. The indicators did a double dip in October and December with two months in between the two lows. Here, we see a double dip in May and now July - again two months apart. When the stock bottomed in December, the stock rallied over 30% in the next two months. A similar move this time would put the stock up above the $86 level.

The Sentiment for Agilent is Slightly Bullish

Turning our attention to the sentiment picture for Agilent, we see three indicators that are either average or slightly skewed to the bullish side. There are 16 analysts following the company with 12 "buy" ratings and four "hold" ratings. This gives us an overall buy percentage of 75%, and that is right at the upper edge of the average range.

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The short ratio interest ratio is currently at 1.5. This particular indicator is below average and shows slightly bullish sentiment toward the stock. There are 4.0 million shares sold short, and it moved down slightly from the beginning of July through the mid-July reading. The company sees trading volume of 2.75 million shares on the average day.

Like the analysts' ratings, the put/call ratio is currently showing an average reading. There are 18,577 puts open at this time and 21,971 calls open giving us a ratio of 0.846. The ratio was at 1.14 back on May 14 when the company reported second quarter results. This indicates that option traders are a little more optimistic heading in to this earnings report.

Overall, I would call the sentiment toward Agilent slightly bullish, but not extremely bullish. The put/call ratio and the analysts' ratings are in the average range, but the two have moved in opposite directions in the last few months. Analysts have become less bullish and option traders have become more bullish. The short interest ratio is slightly skewed to the optimistic side.

My Overall Take on Agilent Technologies

I like Agilent's fundamental standing, and I like the way the chart is setting up with the stock just above the 104-week moving average and the lower rail of the trend channel. The sentiment is a minor concern ahead of the earnings report.

The company did disappoint with its last earnings report, and the stock fell 11% following the announcement. In the three prior earnings reports before May, the stock rallied after each report.

There is an interesting pattern in how the stock behaves around earnings reports. In the last year and a half, six earnings reports, the stock has gapped lower twice, but hasn't gapped higher at all - at least not after an earnings report.

I think the safest play on Agilent right now is to wait until after the earnings report. I am bullish on the stock, but if the company disappoints and gaps lower, it will likely drop below the lower rail of the trend channel, and that will negate one of the drivers behind the bullish posture. If the company meets expectations, based on history, it isn't likely to gap higher, but rather it is more apt to trend higher. Therefore, I recommend waiting until after the earnings report to enter a bullish trade on Agilent.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.