Agilent Q4: Expecting Market Recovery In 2025

Summary:

• I reiterate a “Buy” rating on Agilent Technologies, Inc. with a one-year target price of $150 per share, driven by strategic growth and market recovery.
• Agilent’s acquisition of BIOVECTRA will enhance its CDMO business, focusing on oligonucleotides and CRISPR therapeutics, and expand service offerings in peptide synthesis.
• Agilent’s FY25 guidance includes 2.5%-3.5% core revenue growth and 5.8% adjusted EPS growth, aligned with market expectations and supported by segment-specific growth strategies.
• Key risks include the sluggish economy and geopolitical tensions in China, which represents a significant portion of Agilent’s revenue.

In my previous “Buy” thesis on Agilent Technologies, Inc. (NYSE:A) from August 2024, I highlighted their business transformation towards growth areas. Agilent delivered -0.3% core revenue growth in its fiscal Q4 and guides for 2.5%-3.5% core revenue growth for FY25, in line with the market expectations. I reiterate a “Buy” rating with a one-year target price of $150 per share.

Completed Acquisition Of BIOVECTRA

Agilent released its Q4 FY24 result on November 25^th after the market close, reporting 0.3% decline in core revenue and 3.5% growth in adjusted net income, as depicted in the chart below.

During Q4, Agilent completed the previously announced acquisition of BIOVECTRA for $925 million, a leading specialized contract development and manufacturing organization (CDMO). I believe the acquisition will help Agilent build their CMDO business in oligonucleotides and CRISPR therapeutics end-markets. During the earnings call, the management noted that the company will add additional high-growth therapeutic modalities like peptide synthesis to extend their service offerings.

My key takeaway from the quarter is the early signs of recovery in the pharmaceutical market. Agilent’s pharma end-market declined by 1% during the quarter, with biopharma declining by mid-single-digit and small molecule growing by low-single-digit. During the earnings call, the management expressed strong confidence in a broader market recovery throughout 2025.

Outlook and Valuation

Agilent is guiding for 2.5%-3.5% core revenue growth and around 5.8% adjusted EPS growth for FY25, as detailed in the side below. The outlook is largely aligned with the market expectations.

I am considering the following factors for their future growth:

• Life Sciences and Applied Markets Group: The segment represents almost half of Agilent’s total revenue. During the earnings call, the management indicated that the segment will be a strategic focus in the near future. As the Fed has begun to cut interest rates, I anticipate the economic will start to normalize and the funding environment in the biopharma industry will gradually improve. As such, I anticipate the segment will grow by 5.5%, aligned with the overall growth in pharma and applied market. In the near term, I anticipate strong growth momentum in their analytical lab consumables, which grew at a mid-single-digit rate.
• Agilent CrossLab Group: The segment has exhibited consistent growth across major geographies except China, as noted during the earnings call. I believe Agilent has a strong CrossLab services team. I anticipate the segment will grow by 4% annually, comprising 5% growth in developed countries and 1% headwind from China.
• Diagnostics and Genomics Group: I anticipate the segment will grow by 5%, aligned with their recent performance.
• Adding the three segments together, I calculate Agilent will deliver 5% organic normalized revenue growth. In addition, I assume the company will allocate 6% of revenue toward M&A, contributing 1.5% growth to the topline.
• I continue to forecast 20bps annual margin expansion, driven by 10bps from gross profits and 10bps from reduction in SG&A expenses. I estimate the total operating expenses will grow by 6.2% annually, resulting in 20bps operating margin expansion.
• The cost of equity is calculated to be 11.9% assuming: risk-free rate 3.8%; beta 1.17; equity risk premium 7%.

I calculate the free cash flow from equity (FCFE) as follows:

Discounting all the future FCFE to the year-end of FY25, the one-year target price is calculated to be $150 per share, as per my estimates.

Key Risks

The Asia Pacific region represents more than 34% of Agilent’s total revenue, with China representing a significant portion of this market. In Q4, their China business declined by 3% year-over-year. During the earnings call, the management noted an increase in funnel sales activities in China. However, they decided to take a conservative approach on the timing of the market recovery. I think China will remain a key risk for Agilent in the near future due to the sluggish economy and escalating geopolitical tensions between the US and China.

End Note

I am encouraged by the signs of end-market recovery in 2025, which could potentially accelerate Agilent’s growth in the near future. I reiterate a “Buy” rating with a one-year target price of $150 per share.

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