Food for thought:
The Agilent numbers are very easy to use to justify one's positions, Over/fair/under-valued. The spin can be cast from a number of different ways and no doubt we will have analysts doing this over the next few days, depending on their view (or company's stance).
Let's start with the easy part, like catching fish in a barrel. Diluted earnings per share from 1999 to 2000 rose a paltry 28 cents from $1.35 to $1.63 or 20.75%. Using a traditional valuation metric of 21 times trailing earnings we get a stock valuation of $34. The bears can easily toss around this number as an indication of how overvalued A is.
(not so fast<g>)
Using next year's earnings estimates of $2.20 (likely to be revised over the next few days) and comparing them to this year's actual earnings of $1.63 we can say that the company is expected to grow eps during FY01 at a 35% clip. Using the $34 above valuation as the lowball point and a 35 PE as a high valuation we get a nice price target range of $57 to $77 ($2.20eps x 35PE). One could say that the company is currently at fair value in the mid 40s and that over the course of the coming year the stock will eventually achieve a higher fair value.
(Once again, let's not jump to any conclusions just yet...)
OK, now the grossly undervalued view. With the pending sale of the HSG (Healthcare group) to Philips, we can 'justify' removing this section of earnings in an attempt to see what's left over and where the company might end up a year from now. The HSG section showed $96 million in negative earnings this year vs $124 in actual earnings the year before. If we remove these figures from company, we can extrapolate net earnings (before taxes,etc..) for 1999 and 2000 to be $616MM and $1149 respectively. In other words, net earnings were up 86% without the negative effect of the HSG. However, the stock dilution was about 20% from 1999 through 2000 so the eps increase would be lower, probably in the mid to high 60% range. This would have been substantially larger than the 21% eps year over year growth the bottom line shows on the current earnings release. A 60% increase in eps from 1999 would equate to about $2.15/share for 2000. Keeping the same 35% eps growth for FY01, the new eps target would have been $2.90 without the HSG. $2.90 x 35PE = $101 stock price target for year end FY01. Of course this is a stretch, to say the least but I present it simply to see what comments this post might generate (if any).
It will be interesting to see how the company handles guidance going forward and I look forward to listening to the conference call later tonight. |
