Agilent (A)

Life sciences tools company Agilent Technologies (NYSE:A) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 6% year on year to $1.67 billion. Guidance for next quarter’s revenue was better than expected at $1.66 billion at the midpoint, 0.9% above analysts’ estimates. Its non-GAAP profit of $1.31 per share was 3.6% above analysts’ consensus estimates.

Company Overview

Originally spun off from Hewlett-Packard in 1999 as its measurement and analytical division, Agilent Technologies (NYSE:A) provides analytical instruments, software, services, and consumables for laboratory workflows in life sciences, diagnostics, and applied chemical markets.

The life sciences subsector specializing in research tools and consumables enables scientific discoveries across academia, biotechnology, and pharmaceuticals. These firms supply a wide range of essential laboratory products, ensuring a recurring revenue stream through repeat purchases and replenishment. Their business models benefit from strong customer loyalty, a diversified product portfolio, and exposure to both the research and clinical markets. However, challenges include high R&D investment to maintain technological leadership, pricing pressures from budget-conscious institutions, and vulnerability to fluctuations in research funding cycles. Looking ahead, this subsector stands to benefit from tailwinds such as growing demand for tools supporting emerging fields like synthetic biology and personalized medicine. There is also a rise in automation and AI-driven solutions in laboratories that could create new opportunities to sell tools and consumables. Nevertheless, headwinds exist. These companies tend to be at the mercy of supply chain disruptions and sensitivity to macroeconomic conditions that impact funding for research initiatives.

Agilent's competitors vary across its business segments. In the life sciences and applied markets area, it competes with Thermo Fisher Scientific, Waters Corporation, Shimadzu Corporation, PerkinElmer, and Danaher Corporation. In diagnostics and genomics, competitors include Illumina, Roche, Abbott Laboratories, Sartorius, and Twist Bioscience.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $6.63 billion in revenue over the past 12 months, Agilent has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Agilent’s 4.8% annualized revenue growth over the last five years was mediocre. This was below our standard for the healthcare sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Agilent’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3% annually.

Agilent also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Agilent’s organic revenue averaged 3% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Agilent reported year-on-year revenue growth of 6%, and its $1.67 billion of revenue exceeded Wall Street’s estimates by 2.7%. Company management is currently guiding for a 5.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Agilent has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 21.5%.

Analyzing the trend in its profitability, Agilent’s operating margin rose by 1.7 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming into its more recent performance, however, we can see the company’s margin has decreased by 2.6 percentage points on a two-year basis. If Agilent wants to pass our bar, it must prove it can expand its profitability consistently.

In Q1, Agilent generated an operating profit margin of 18%, down 5.1 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Agilent’s EPS grew at a remarkable 11.2% compounded annual growth rate over the last five years, higher than its 4.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Agilent’s earnings to better understand the drivers of its performance. As we mentioned earlier, Agilent’s operating margin declined this quarter but expanded by 1.7 percentage points over the last five years. Its share count also shrank by 8.7%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Agilent reported EPS at $1.31, up from $1.22 in the same quarter last year. This print beat analysts’ estimates by 3.6%. Over the next 12 months, Wall Street expects Agilent’s full-year EPS of $5.40 to grow 7.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Agilent has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 19.1% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Agilent’s margin dropped by 3.6 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Agilent’s free cash flow clocked in at $107 million in Q1, equivalent to a 6.4% margin. The company’s cash profitability regressed as it was 8.2 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Agilent hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 16.9%, impressive for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Agilent’s ROIC averaged 1.9 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Agilent reported $1.49 billion of cash and $3.50 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.93 billion of EBITDA over the last 12 months, we view Agilent’s 1.0× net-debt-to-EBITDA ratio as safe. We also see its $9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Agilent beat analysts’ organic revenue expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Adding to the good news, Agilent raised its full-year revenue guidance. Zooming out, we think this was a good quarter. The stock traded up 6.2% to $117.70 immediately following the results.

Updated: June 14, 2025 at 11:40 PM EDT

Before making an investment decision, investors should account for Agilent’s business fundamentals and valuation in addition to what happened in the latest quarter.

Agilent isn’t a terrible business, but it doesn’t pass our bar. To kick things off, its revenue growth was mediocre over the last five years, and analysts don’t see anything changing over the next 12 months. And while its strong operating margins show it’s a well-run business, the downside is its organic revenue declined. On top of that, its cash profitability fell over the last five years.

Agilent’s P/E ratio based on the next 12 months is 20.1x. This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $136.83 on the company (compared to the current share price of $116.50).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.