Morningstar | Agilent Continues to Benefit From Biopharma and Chemical Sector Strength
Narrow-moat Agilent slightly raised its year-end outlook following solid fiscal third-quarter results, which incorporated 5.9% organic growth and an operating margin of 22.3%, up over 100 basis points from last year. We may slightly increase our fair value estimate as we modestly boost our year-end bottom-line forecast, even though our revenue and adjusted EPS forecasts of $4.9 billion and $2.68, respectively, are close to management’s current expectations of $4.87 billion and $2.70 at the midpoint for the year. Management’s guidance implies organic growth of roughly 4.7% in the fiscal fourth quarter, which looks too conservative to us. Despite some growing concerns over Chinese tariffs depressing demand and raising input costs, we largely see Agilent’s revenue growth and margin expansion goals as attainable thanks to new product initiatives, including manufacturing expansion in nucleic acid solutions, and t he company’s ability to adjust its supply-chain sourcing from China.Agilent’s biopharma, chemical, and energy markets should remain key near-term growth drivers. As we’ve seen with peers, the biopharma segment--reporting another quarter of stable 8% organic growth for Agilent--continues to benefit from healthy underlying demand for biologic and small-molecule drug research. Additionally, the turnaround in the chemical and energy market witnessed over the past few quarters has persisted with 12% organic growth for the quarter, helped by strong semiconductor customer demand. Similar to last quarter, these segments continue to offset modest weakness in the academic, environmental, and food segments. As we noted last quarter, the restructuring of a Chinese regulatory agency has hit food-related sales particularly hard, with another quarter of a 1% sales decline in this customer segment. Regardless, we still view many of these issues as transitory, with currently stronger segments supporting mid-single-digit growth for the firm.
Agilent Technologies is engaged in life sciences, diagnostics and applied chemical markets. The company's segments are: Life Sciences and Applied Markets Business, which provides instruments and software that enable customers to identify, quantify and analyze the physical and biological properties of substances and products; Diagnostics and Genomics Business, which includes the genomics, nucleic acid contract manufacturing and research and development, pathology, companion diagnostics, reagent partnership and biomolecular analysis businesses; and Agilent CrossLab Business, which spans the entire lab with its consumables and services portfolio to improve customer outcomes.
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