Agilent Turns in Solid First Quarter and Boosts 2023 Guidance Slightly

Wide-moat Agilent A released first-quarter results that pushed its bottom-line results up toward our expectations for 2023. Management has raised its 2023 guidance mildly, although our adjusted EPS forecast remains above the current projected range. While we have tinkered with our near-term assumptions after this announcement, our $127 fair value estimate has not changed materially.

In the quarter, sales grew 10% on a core basis (adjusted for currency changes and acquisitions/divestitures), and adjusted EPS grew 13%. Agilent’s largest end market, pharma and biotech, grew 11% with small molecules outpacing large molecules again this quarter. Also, the chemical and advanced materials division grew 14% with strength across various end markets, including semiconductors and lithium batteries. Even the company’s weakest divisions still grew in the mid to high single digits on a core basis, which is what we would view as normal for Agilent’s medical diagnostics and research markets.

With strength in the first quarter and some currency challenges abating a bit, the firm now expects slightly higher (50 basis points) core revenue growth of 5.5% to 6.5%, too, and the firm’s overall top-line outlook appears slightly higher than our previous expectation. We’ve raised our near-term expectation mildly, and we continue to expect slightly stronger bottom-line growth than its current guidance, which the company slightly increased to $5.65 to $5.70 of adjusted EPS and represents 8% to 9% growth over fiscal 2022. Management’s guidance typically is conservative, so we’ll likely keep our slightly stronger view for 2023 intact. Additionally, the company updated its cash flow forecasts for the year, including a higher capital expenditure budget on expansion of its oligonucleotide manufacturing capacity. While this investment represents a multiyear headwind to free cash flow, we expect it will also be a long-term growth driver after this new capacity comes on board in 2026.