Under-Promising, Over-Delivering: Has Agilent's Management Gained Credibility?

Agilent Technologies Inc A reported its FY2Q16 results broadly ahead of expectations. BTIG’s Dane Leone reiterated a Buy rating for the company, with a price target of $50. The analyst commented that management would begin gaining credibility for “under-promising and over-delivering,” with the company’s recent performance, which is also likely to support a valuation rerating.

Agilent has generated mid- to high-single digit growth for six straight quarters. The company reported its FY2Q16 organic growth at 8 percent y/y and EPS at $0.44, beating expectations. Management merely raised the midpoint of their full-year EPS guidance by +$0.06 to $1.90, which equates to the FY2Q16 beat.

Analyst Dane Leone expressed optimism regarding management commentary about FY2017 financial expectations lending upside to the company’s shares.

FY2017 Outlook

“Management noted that the upgrade cycle of the current ~150,000 LC [Liquid Chromatography] global installed base still has room to run headed into FY2017, as the Pharma and BioPharma cycle is still only in the 5th or 6th inning, and the Applied markets are in early innings,” Leone wrote.

Following solid double-digit growth for the past four quarters, Pharma & Biotech end-markets remained strong, recording 14 percent y/y growth.

China posted strong double-digit growth, with “surprising strength within the Academic & Govt end-markets,” the analyst mentioned. He added that operational improvements should help sustain low double-digit growth for the full year.

Management projected 4.5 percent organic growth and ~22 percent operating margins for FY2017. “This translates in our model to +13% EBITDA growth, which would likely be leading growth versus Large Cap peers during the next 12-months,” Leone noted.