Agilent Technologies (A) is a broad-based OEM of test and measurement equipment. The company's fourth quarter earnings beat the Zacks Consensus Estimate, but uncertain macro conditions — particularly in the U.S. and Europe — and a softer-than-expected earnings guidance have increased concerns regarding near-term performance.
We are therefore downgrading Agilent shares from Neutral to Underperform. Agilent shares are trading at 13.3X trailing twelve months (TTM) earnings, which is toward the low end of the historical range and at a discount to the peer group. This seems to indicate that the shares are under-valued.
However, the 28% discount based on our earnings expectations for fiscal 2013 is much less than the 34% average discount to the peer group that it has been historically, indicating downside pressure. We are therefore issuing a price target of $38.00 (12.5X 2013 EPS).
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