Friday, May 18, 2012

A: Taking Agilent's measure

Agilent Technologies (A) makes equipment to measure things -- not rulers to find out how tall your child is or scales to determine how overweight you are, but tools for technically demanding measurements in chemical analysis, life sciences and electronics.

The Santa Clara, California company serves customers in more than 100 countries.

Analysts are mainly neutral about Agilent -- neither bullish nor bearish.

The chart, however, shows a bearish cast. The financials are bullish. It's an interesting contrst, and that's why I've chosen to analyze Agilent today.

Agilent began its most recent leg down from its March 28 swing high of $48.28 and reached a low of $38.44 on May 14. The current leg is part of a broader decline from the May 2011 high of $55.33.

No declining stock is free from historical resistance. Falling generally mean the equity's price has been at that level before.

The next strong resistance within the decline from the 2011 high is $32.51, a reversal point encountered on Dec. 21, 2011.

A rise above $43.27 would set up the possibility of a renewed uptrend.

This is a downtrending chart. Yet, disturbingly, the volume keeps spiking on the upswings as the price zig-zags downward. These zag spikes suggest that there's some serious buying interest keeping tabs on this stock.

Despite analysts' and traders' negative view, Agilent has some fairly decent financials. The return on equity is 25% -- growth stock territory -- and long-term debt, although higher than I like, is 45% of equity, far lower than that of many companies considered to be potential bull plays.

The institutional investors are on board, owning 81% of Agilent's shares, and they've bid up the price so that it takes $2.03 in shares to control a dollar in sales.

Agilent's earnings have risen from the prior period every quarter since the beginning of 2010, with only two exceptions. All quarters from the end of 2009 onward have positive earnings that have bet the analysts' consensus.

So, this is not a portrait of a company in trouble.

Agilent announced in May that it is buying a Danish company, Dako, which develops cancer diagnosis tools. I suspect that the negative vibes about Agilent are based on the cost of the deal and on its European exposure in the midst of the EU's debt crisis. Europe is the source of 23% of the company's revenues.

Agilent on average trades 4.1 million shares a day, sufficient to support a wide inventory of options with high open interest and narrow bid/ask spreads.

Implied volatility stands at 42%, slightly below the midpoint of the six-month range. Volatility has been gently stair-stepping upward since early May.

Options traders are pricing in a 68.2% chance that the stock will close between $34.39 and $43.87 a month from now, for a maximum gain or loss of 12%.

Agilent next publishes earnings on Aug. 13. The stock goes ex-dividend in June for a quarterly payout yielding 1.02% annualized.

Decision for my account: I'm passing I'm Agilent. The upside volume spikes are the main reason for my caution when it comes to a bearish play, the only direction open to me as a technical trader, given the nature of the chart. If the company's financials were awful, then that might overcome the chart. But Agilent actually looks pretty good in that area.

A higher high within the current leg down would cause me to revisit Agilent, as a bull play.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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