In my August 16 Agilent Technologies (A) post, I disclosed the following purchases:
- 100 shares @ ~$115.96/share on June 9; the forward adjusted diluted PE level was ~20.6.
- 100 shares @ ~$118.48/share on July 6; the forward adjusted diluted PE level was ~21.1.
With the recent weakness in A's share price, I deem A's valuation to be sufficiently attractive to add to my exposure. I have, therefore, acquired another 100 shares @ ~$113.82 on September 11.
Valuation
Management's Q4 and FY2023 guidance is as follows:
The current mid-point of management's FY2023 adjusted diluted EPS guidance is $5.415. When I last reviewed A, shares were trading at ~$122 and the forward adjusted diluted PE was ~22.5.
Using current broker estimates, A's forward adjusted diluted PE was:
- FY2023 - 19 brokers - mean of $5.36 and low/high of $3.77 - $5.62. Using the mean estimate, the forward-adjusted diluted PE is ~22.8.
- FY2024 - 19 brokers - mean of $5.70 and low/high of $4.04 - $6.19. Using the mean estimate, the forward-adjusted diluted PE is ~21.4.
- FY2025 - 15 brokers - mean of $6.29 and low/high of $4.12 - $6.82. Using the mean estimate, the forward-adjusted diluted PE is ~19.4.
Looking at A's valuation from an FCF perspective, management's revised FY2023 guidance is ~$1.2B. The diluted weighted average shares outstanding for the quarter ended July 31 is ~295 million. Divide the guidance by the shares outstanding and we arrive at ~$4.07. Using the current ~$122 share price, I arrived at a forward P/FCF value of ~30. In comparison, A's P/FCF in FY2013 - FY2022 is 17.1, 19.5, 28.5, 18.9, 24.6, 20.2, 26.6, 40.2, 33.0, and 34.2.
Using my $113.82 purchase price on September 11 and the $5.415 current mid-point of management's FY2023 adjusted diluted EPS guidance, the forward adjusted diluted PE is ~21.
The valuation using current broker estimates is:
- FY2023 - 17 brokers - mean of $5.42 and low/high of $5.40 - $5.46. Using the mean estimate, the forward-adjusted diluted PE is ~21.
- FY2024 - 17 brokers - mean of $5.70 and low/high of $5.58 - $5.82. Using the mean estimate, the forward-adjusted diluted PE is ~20.
- FY2025 - 14 brokers - mean of $6.40 and low/high of $6.21 - $6.76. Using the mean estimate, the forward-adjusted diluted PE is ~17.8.
From an FCF perspective, my recent $113.82 purchase price divided by ~$4.07 FCF/share results in a forward P/FCF value of ~28.
Final Thoughts
Although A's share price can certainly drift lower from the current level, I know I can not perfectly 'time' my purchases. In the grand scheme of things, my purchases are relatively insignificant so even if the share price were to decline further, I wouldn't lose sleep. Furthermore, I am not investing to make a 'quick buck'. My investment time horizon is decades (much longer than I anticipate I will be around).
In several recent posts, I state my desire to acquire shares in high-quality companies that are experiencing short-term headwinds and which appear to have fallen out of favour with investors. A strikes me as such a company.
If A's dividend history is a precursor of what we can expect, negligible dividend increases are what shareholders can likely expect going forward. A, however, is generating strong FCF and with no significant debt maturities until 2025, I expect further share repurchases as part of A's capital allocation...especially if A's shares are undervalued; A has reduced the weighted average of outstanding shares by ~50 million from FY2013 and Q3 2023.
I remain confident about the long-term growth prospects of A's end markets and think the near-term challenges are transitory.
At the end of my August 16 post, I wrote:
'While A's undervalued shares present a buying opportunity, I am eyeing other existing holdings in which I wish to increase my exposure. I am not, therefore, adding to my exposure at this stage. If, however, A's share price were to plunge, I would consider acquiring additional shares. Naturally, much would depend on the valuation of other companies I am eyeing.'
I have been adding to my exposure in other companies. The decline in A's share price and improved valuation, however, have prompted me to add a few shares. I now hold 500 shares in a 'Core' account in the FFJ Portfolio.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long A.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your due diligence and research. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
