Agilent's FY17 Outlook Weaker Than Expected, But Looks Beatable, Morgan Stanley Says

Agilent Technologies Inc A reported its 2FQ16 results ahead of expectations. Morgan Stanley’s Steve Beuchaw maintained an Equal-Weight rating for the company, while raising the price target from $44 to $47. The analyst commented that although the initial FY17 guidance was weaker than expected, the company should be able to beat it.

The upward revision in the price target reflects peer multiple re-ratings, analyst Steve Beuchaw noted.

2FQ16 Performance And 2016 Guidance

Agilent reported its revenue for the quarter 4 percent higher than the MS estimate and the midpoint of guidance. The beat was driven partly by revenue timing, with rapid traction from the company’s cross-functional cycle time reduction initiative, and partly by FX.

“We take the combined results for 1FH16 as validation that the business is tracking toward ~5% growth in spite of tough industrial trends, though the tough ’15 comp keeps ’16 in the 4%-5% range,” Beuchaw wrote. He added that the guidance update for 2016 appears a little conservative.

FY17 Outlook

Agilent announced a preliminary outlook for FY17, with core growth of 4.5 percent and EBIT margins of 22 percent. Although this is in-line with investor expectations, they “clearly are a de-risking event as management remains confident in the outlook,” the analyst commented.

Beuchaw forecasted 5.4-5.5 percent organic growth for FY17, since comps are likely to be easier than FY16. He noted that Agilent’s FY17 outlook appropriately reflects the uncertainties related to the sustainability of rapid pharma growth and the expected pace of improvement in the chem/energy channel.

“We are admittedly pressing our bets on the Tools end markets here, and will continue to do so ahead of any sign of breakdown in our survey and tracking analysis,” Beuchaw said.