Agilent Technologies (A)

Total return at 5 years: -5.8%/year = -6.6% appreciation + 0.8% dividend. The target price ($122) is ex-dividend; the $6 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $115 · Multiples $103) is below the market price ($171).

Today — expensive, no margin of safety: at $171 trades ~66.1% above its value discounted to today (~$103); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$65.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($171) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (14.3%/year) above our base case (5.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$2.3 bn of owner earnings in year 5 (vs ~$1.5 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on NOPAT (EV/NOPAT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Enterprise-level model (EV/NOPAT on after-tax operating income, with cash and debt in the bridge), with the terminal exit multiple anchored in the medical technology archetype band (16-22×, §4). Year 0 is the rolling twelve-month window ended 31 July 2026 (USD7,372 million of revenue, a 19.5% net margin, a 22.2% operating margin), which incorporates the third quarter of FY2026 filed on 1 September 2026. The base case revenue path starts at 6.0% in year 1 —anchored to the raised guidance in the third-quarter FY2026 earnings release (26 August 2026: FY2026 revenue of USD7.49-7.51bn, +7.8%/+8.1% reported and +5.8%/+6.0% core, with the fourth quarter guided to +5.2%/+6.2% core)—. The comparison against reported growth is not the right one: the reported TTM grows 8.6% while the modeled year 1 runs at 6.0% because the difference is currency and acquisitions, which the company itself quantifies by publishing both figures (7.8-8.1% reported against 5.8-6.0% core, or roughly 2 points), and the method requires anchoring the path to organic constant-currency growth and treating currency as a separate movement, never baked into the base. Read that way, the 6.0% is the top of the guided core range, and the third-quarter guidance reinforces it rather than contradicting it: it raised the floor of the core range from 4.5% to 5.8%. The year 0 margin includes a non-recurring benefit from tariff refunds that the company states at USD0.06 per share in the third quarter —on the order of 0.2 points of margin, so it is declared rather than normalized— and decelerates smoothly to 4.0% by year 5, consistent with a mature instrumentation and diagnostics market. The net margin expands from 19.55% to 20.9% as the Ignite restructuring plan completes its annual savings target of USD75-80 million (expected in the second quarter of FY2026). The bear case stresses year 1 to 4.0% (the low end of core guidance) with no margin recovery; the bull case takes it to 8.0% with more marked margin expansion. The effective tax rate used (10.5%) is the real TTM rate from XBRL (tax expense of USD166 million on pre-tax income of USD1,580 million), which incorporates structural benefits declared in the filing (the Singapore tax regime, FDII). No explicit share repurchase (sharesPath) is modeled: the recent net buyback (~0.9% of market capitalization in the TTM) falls below the method's materiality threshold (~1%/year) and is also volatile year to year (USD575M FY2023, USD1,150M FY2024, USD425M FY2025, USD387M TTM), with no sustained pattern to project with discipline.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $122 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $171, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $122 in 5 years plus $6 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $103. Against the current market price ($171), the margin of safety is -66.1% (trades above the maximum → a premium is paid) and the total return at that price would be -5.8% annually.

• Entry multiple. At $171 the stock trades at 35× trailing-twelve-month after-tax operating income, above the 22-times ceiling of the medical technology band.
• Base total return. With the disciplined exit multiple (19×) and the growth path anchored in guidance, the base scenario yields -6% in total annual return.
• No identifiable market discount. No forced selling or cycle trough is identified that would explain a discount in the price.
• Dividend yield. The current dividend yield (~0.7%) is modest but grows steadily (~5-6% annually in recent fiscal years).

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (82%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. TTM operating cash flow (USD1,452 million) comfortably covers capex (USD365 million) and the dividend, although earnings-to-cash conversion is ~77%.
• Sustained ROIC. Return on invested capital (~16%) consistently exceeds the 10% bar, backed by a high-margin services business.
• Reinvestment runway. Capex grows above depreciation (USD342 million vs. USD271 million TTM), partly earmarked for BIOVECTRA's CDMO capacity deployment.
• Earnings quality. The GAAP operating margin sits ~500 basis points below the adjusted margin due to amortization of intangibles from past acquisitions, a non-economic but real gap worth watching.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Product and services revenue follow different trajectories: products fell from USD5,051 million in FY2023 to USD4,672 million in FY2024 during the destocking cycle, and only recovered to USD4,944 million in FY2025; services and other, by contrast, grew uninterrupted (USD1,782 → USD1,838 → USD2,004 million), confirming the recurring and less cyclical character of the CrossLab business. Share buybacks were opportunistic and volatile (USD575 million in FY2023, USD1,150 million in FY2024, USD425 million in FY2025), with no steady year-over-year pace.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Current guidance. The company raised its FY2026 revenue guidance to USD7.39-7.49bn (+6.3%/+7.8% reported, +4.5%/+6.0% core) after a strong second quarter.
• Segment driver. Life Sciences and Diagnostics leads with +11% in FY2025, driven by BIOVECTRA; Applied Markets grows only +1%, still lagging from the instruments cycle.
• No contracted backlog. The business is mostly transactional (direct sales, distributors, e-commerce), without an RPO-type leading indicator to anchor the projection beyond guidance.
• Volatile recent track record. Revenue fell -0.2% in FY2023 and -4.7% in FY2024 before recovering +6.7% in FY2025, reflecting a destocking cycle in laboratory instrumentation.

• Revenue recurrence. CrossLab (vendor-neutral services and consumables) accounts for ~42% of FY2025 revenue and grows with the installed base, not only with new instrument sales.
• Product leadership. Agilent states it is the world's leading provider of gas chromatographs, with a strong position in liquid chromatography and mass spectrometry.
• End-market diversification. Six end markets (pharmaceutical, diagnostics, academic, chemicals, food, environmental) reduce dependence on a single spending cycle.
• Intense competition. Thermo Fisher, Danaher, Waters, and Bruker compete in nearly every product category, in a sector undergoing increasing consolidation.
• Capital spending cyclicality. Demand depends on the capital budget of pharmaceutical and research customers, which contracted in FY2023-FY2024 (-0.2% and -4.7%).

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)16.4x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 82% of ROIC
• ✓Value creation (ROIC − 10% bar)+6pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.3x
• !Float / working capitalConsumes cash $0.4 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 1.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt of USD3.36bn against cash and short-term investments of USD1.94bn leaves modest net debt (~USD1.4bn) against a market value of USD42bn.
• Interest coverage. Quarterly interest expense (~USD25 million) is amply covered by operating income of USD399 million in the same quarter.
• Liquidity. Cash and short-term investments of USD1.94bn plus TTM operating cash generation (USD1.61bn) comfortably fund capex, the dividend, and buybacks.
• Margin stability. The GAAP operating margin gave up ~200 basis points in FY2025 due to tariffs, product mix, and restructuring costs, a pressure worth watching.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO track record. Padraig McDonnell built his entire career at Agilent, including four years leading CrossLab, before assuming the presidency in May 2024.
• Capital allocation. Growing dividend, opportunistic buybacks (~1% of market value over the last year), and bolt-on acquisitions rather than transformational mergers.
• Restructuring history. Three consecutive restructuring plans (FY2023-FY2025, USD204 million cumulative) reflect recurring cost adjustments, not an isolated event.
• Divestitures. The exit from the Resolution Bioscience business in 2023 (USD253 million impairment) showed willingness to cut bets that do not work, at a real cost.

• There is no evidence of motivated sellers: no below-consensus result, no recent one-off charge distorting GAAP, and no media event unrelated to the business was identified.
• Nor is there a sign of missing buyers: the stock has broad analyst coverage, trades in the market where it operates, and is not at the bottom of a cycle.
• The company raised its guidance in the May 2026 earnings release, suggesting the recent re-rating reflects a genuine improvement in fundamentals, not a perception distortion the market will correct in the buyer's favor.

At $171, 35× trailing-twelve-month after-tax operating income, Agilent shows none of the usual sources of discount (§3 Step 9): no motivated sellers, no missing buyers, no cycle bottom. The price appears to fairly tightly reflect the recent improvement in fundamentals — raised guidance, expanding adjusted margin, Ignite plan momentum — and the method, with its disciplined exit multiple (16-22× for medical technology), finds no clear margin of safety in the base scenario. This is not a warning about the quality of the business, but about the entry point.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -12%/year (-47% total): the margin of safety protects the downside. The bull (-1%/year, -5% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Macro/customer capex. Demand depends on the capital budget of pharmaceutical, academic, and government customers, with limited quarterly visibility.
• Tariffs. Tariffs between the United States and China and shipping cost pressure already reduced margin in FY2025 and could intensify.
• Competition. Thermo Fisher, Danaher, Waters, and Bruker compete closely in almost every category, with increasing sector consolidation.
• M&A integration. BIOVECTRA and other bolt-on acquisitions require integrating culture, systems, and controls without damaging shared customer relationships.
• Entry multiple. At 35× trailing-twelve-month after-tax operating income, much of the return depends on execution offsetting compression toward the medical technology band.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 16% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 6.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 16% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 14% vs our 5%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -13%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, switching costs, cost advantage, efficient scale → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 14% growth, far above our 5% — heroic assumptions.