Agilent Technologies Inc. (A) was recently assigned a Baa2 rating by leading credit rating agency Moody's along with a stable outlook. Investors reacted positively to the news as the share price rose 1.8% in the subsequent trading session.
The rating agency has assigned the Baa2 rating based on the company’s continued growth and good scale of operations. The company continues to do well in the Life Sciences and Chemical Analysis segments and its decision to divest the underperforming Electronics Measurement ("EM") business makes perfect sense under the circumstances. The rating also reflects Agilent’s diversified geographic and industrial operations coupled with its highly differentiated product line. These indicate healthy growth prospects for the company, going forward.
The spin-off of EM is expected to be complete around Nov 1, 2014 and it will operate as a separate, publicly traded entity called Keysight Technologies. Following the spin-off, Agilent will consist of its Life Science, Chemical Analysis, and Diagnostics and Genomics businesses ("LDA") only.
However, the rating is restricted as Moody’s is cautious about Agilent’s dependence on the revenues derived from the sale of costly equipment used in analytical laboratories. This equipment can be affected by economic fluctuations’ and capital expenditure budgets of customers, which can lead to fluctuating demand. The rating is also constrained as Moody’s expects Agilent to use most of its U.S. cash flow for dividends or share buybacks.
Moody’s assigned a stable outlook, up from negative, on the rating based on the company’s strong competitive position and growth in key markets. The agency believes that its improving performance will continue in the future as well.
Rating affirmations or upgrades from credit rating agencies play an important part in shaping investor confidence in the stock as well as in maintaining credit worthiness in the market. The Moody’s Baa2 rating is an investment grade rating, indicating medium grade obligations which may possess speculative characteristics with moderate credit risk.
Agilent reported encouraging third quarter results with revenues of $1.77 billion, up 2% sequentially and 6.9% year over year. Earnings per share of 78 cents exceeded the Zacks Consensus Estimate by 4 cents, driven by continued improvement in the company’s end markets. Agilent’s results in the reported quarter were helped by good cost control and a better product mix.
Agilent carries a Zacks Rank #3 (Hold). Better-ranked stocks include Ametek Inc. (AME), National Instruments Corp. (NATI) and Cognex Corp. (CGNX). All these stocks carry a Zacks Rank #2 (Buy).
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