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Citigroup Initiates Coverage of Agilent with Buy Rating

NEW YORK (GenomeWeb News) – Citigroup today initiated coverage of Agilent Technologies with a Buy rating and a $46 target on the company's stock.

In a research note, analyst Amit Bhalla said that he expects revenues to grow between 5 percent and 6 percent through fiscal 2014 with EPS growth of between 10 and 11 percent. He also noted Agilent's growing footprint in the life sciences, as well as its comparatively lighter exposure to the academic/government end markets and greater presence in the emerging markets.

Agilent is a relative newcomer to life sciences, but in the past few years, the Santa Clara, Calif.-based firm has moved aggressively to increase its presence as a life science tools player, and the firm has said that it believes that life sciences will be a key growth driver.

In his note, Bhalla pointed to Agilent's efforts to build out its life science portfolio with the acquisitions of Stratagene in 2007, Varian in 2009, and the pending buy of Dako.

"As Agilent expands its market leading measurement technology from its electronics measurement group into the life sciences, we see significant opportunities for penetration, and additionally, with Agilent's current product mix overweight on instruments compared to life science peers (20 percent vs. 54 percent), we believe Agilent has significant runway to begin to drive consumables pull through on its instrument install base," he said.

Agilent's Life Sciences Group comprised about 22 percent of the total business in fiscal 2011 but is Agilent's fastest growing segment. The pharma/biotech market comprised 64 percent of LSG revenues and about 14 percent of total company revenues in 2011, Bhalla said, while academic/government makes up about 36 percent of LSG revenues and 8 percent of total revenues.

This mix should work in Agilent's favor, especially as the academic/government space remains volatile, he said, adding that though large pharma companies are reducing overall spending and drug pipelines are shrinking, they are investing in better analytical tools to improve R&D productivity.

"While we believe that Agilent's exposure to the pharma/biotech market … and the government and academia… is a risk, there have been encouraging developments in the growth of generic pharma and select international markets that should continue to offset softness in the major US pharma sector," he said. "We also believe that the company's sales force realignment to capture the underpenetrated academic and government [space] should continue to pay dividends."

In addition, Agilent's presence in the emerging markets positions it well for the future. The company has a 47 percent exposure to emerging markets, compared to 29 percent on average for life science tools firms. Near-term economic slowdowns are a threat, but "Agilent's footprint positions it for significant growth opportunities in the long-term as emerging market economies continue to grow faster than developed markets," Bhalla said.

At a recent investor conference, Nick Roelofs, president of Agilent's life sciences business, highlighted China and Southeast Asia as growth areas for the firm, and in January he said that in short time Asia Pacific could become the dominant geography in LSG.

Bhalla said that Agilent has 16 percent exposure to China and revenues from the emerging markets grew from $1 billion in 2000, or about 10 percent of total company revenues, to $1.7 billion in 2011, or about 26 percent of total revenues in 2011. Longer term, emerging markets is anticipated to add another $1.1 billion in growth, he said.

In later afternoon trading shares of Agilent were up 2 percent to $40.01.

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