Better Buy: Agilent vs. Thermo-Fisher

Agilent Technologies Inc. (A) and Thermo Fisher Scientific Inc. (TMO) are two of the world’s top companies in the analytical instrument development space, serving the healthcare sector. Agilent serves the life sciences, diagnostics and applied chemical markets. TMO primarily operates through four segments — Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Services.

Most of the companies in the healthcare space have received a boost amid the pandemic with increased health awareness. With continued technological advancements, both Agilent and TMO are expected to witness an increase in the demand for their products and services.

While Agilent has returned 219.2% over the past five years, TMO has gained 286%. However, in terms of past three-month performance, Agilent is a clear winner with 17.8% returns versus TMO’s 8%. But which of these two stocks is a better pick now? Let's find out.

Latest Movements

At the end of last month, Agilent announced the release of MassHunter Workstation Plus 11.0, MassHunter Networked Workstation 11.0, and MassHunter BioConfirm, and first shipments are expected in June. The latest revision of these software enables data integrity consistent with the regulatory requirements from the US FDA and EU EMEA guidance. On January 15, the company announced the appointment of Allison Ballmer as the company’s new senior vice president of Strategy and Corporate Development.

A announced on December 22, 2020 that it has obtained clearance for the GenetiSure Dx Postnatal Assay — a microarray-based assay for diagnostic use — from the Ministry of Health, Labour and Welfare (MHLW) in Japan. The company’s NanoDis System and the innovative new style polychromator in the 5800 and 5900 ICP-OES have received Innovation Awards from The Analytical Scientist, as announced on December 14, 2020.

The company announced on December 3, 2020, that its clinical informatics platform Alissa Interpret has been adopted by the North West Genomic Laboratory Hub (NW GLH) based in Manchester and Liverpool.

TMO announced on January 29 that it has been recognized as a "Best Place to Work for LGBTQ Equality" for the sixth consecutive year and has received a perfect score on the 2021 Corporate Equality Index (CEI). On January 27, the company announced that it has developed a new medium for the development and expansion of human T lymphocytes (T-cells) for cell therapy developers using allogeneic workflows.

The company unveiled the Thermo Scientific Athena Software on January 26, which is a premium platform that simplifies the management, traceability and sharing of data for core imaging facilities dedicated to materials science research. TMO announced on January 19, that it has entered into a definitive agreement to acquire Mesa Biotech, Inc.

Recent Financial Results

Agilent’s revenue surged 8.5% year-over-year to $1.48 billion for the fourth quarter of fiscal 2020 ended October 31, 2020, driven by strong growth across all regions and all three businesses.

In the Life Sciences and Applied Markets Group, Agilent’s revenue increased 8% year-over-year to $671 million. And both the Agilent CrossLab Group (ACG) and the Diagnostics and Genomics Group (DGG) reported a revenue growth of 9% year-over-year. Net income increased 14.4% year-over-year to $222 million, yielding non-GAAP EPS of $0.98 which increased more than 10% year-over-year.

TMO’s revenue for the fourth quarter ended December 31, 2020 increased 54% year-over-year to $10.55 billion. Revenue from the Life Sciences Solutions Segment increased 138% year-over-year to $4.37 billion. Net income increased 149.3% year-over-year to $2.5 billion, and non-GAAP EPS increased 99.7% year-over-year to $7.09.

Past and Expected Financial Performance

Agilent’s revenue and EPS grew at a CAGR of 6.1% and 3.1%, respectively, over the past 3 years. Also, the company’s EBITDA increased at a CAGR of 8.3%, over the same period.

Analysts expect Agilent’s revenue to increase 6.1% for the quarter ending January 2021 and 7.7% in fiscal 2021. The company’s EPS is expected to grow 16.9% for the quarter ending April 2021 and 12.8% in 2021. Moreover, its EPS is expected to grow at a rate of 9.3% per annum over the next five years.

On the other hand, TMO’s revenue and EPS grew at a CAGR of 12.9% and 27.4%, respectively, over the past 3 years. Also, the company’s EBITDA increased at a CAGR of 18.8%, over the same time period.

The market expects TMO’s revenue to increase 34.5% for the quarter ending March 2021 and 8.3% in fiscal 2021. The company’s EPS is expected to grow 77.2% for the quarter ending March 2021 and 9.3% in fiscal 2021. Moreover, TMO’s EPS is expected to grow at a rate of 16.7% per annum over the next five years.

Profitability

TMO’s trailing-12-month revenue of $28.50 billion is higher than A’s $5.34 billion. However, Agilent is more profitable with a gross margin of 53.1% versus TMO’s 47.3%.

But, TMO’s leverage free cash flow margin of 15.7% compares favorably with A’s 11%.

Valuation

In terms of forward P/E, Agilent is currently trading at 32.54x, 20.8% more expensive than TMO which is currently trading at 26.94x. Though Agilent is less expensive in terms of trailing-12-month P/S (6.95x versus 7.10x), its forward PEG of 3.36x is higher than TMO’s 1.73x.

In terms of trailing-12-month price/cash flow, Agilent’s 40.04x is 36.1% higher than TMO’s 29.43x.

Though Agilent looks slightly more expensive compared to TMO, it’s worth paying this premium considering Agilent’s significantly higher earnings growth potential over this year.

POWR Ratings

Agilent has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. TMO has an overall rating of B, which represents a Buy.

Agilent has a Momentum Grade of B, which is consistent with the company’s higher returns over the past three months. In comparison, TMO has a Momentum Grade of C.

In terms of Quality Grade, Agilent has a B rating, which is reflective of its higher gross profit margin. On this front, TMO is rated C.

Moreover, out of 61 stocks in the Medical - Diagnostics/Research industry, Agilent is ranked #1 and TMO is ranked #10.

Beyond what I stated above, our POWR Ratings system also rates both Agilent and TMO for Growth, Value, Stability, and Sentiment. Get all of Agilent’s ratings here. Also, click here to see the additional POWR Ratings for TMO.

The Winner

Both Agilent and TMO can be considered good investments, considering their global market dominance and continuous product innovation. However, Agilent is the better buy based on superior financials, in spite of trading at a marginally higher valuation.

Click here to learn about four other stocks in the Medical - Diagnostics/Research industry with an Overall POWR Rating of A, which equates to Strong Buy.

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A shares were unchanged in after-hours trading Monday. Year-to-date, A has gained 2.14%, versus a 0.63% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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