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Keysight (KEYS) Looks Promising on Upbeat Q4: Should You Buy?

Zacks

Keysight Technologies Inc. KEYS shares have been rallying since its fourth-quarter fiscal 2018 earnings release on Nov 20. In fact, the company has outperformed the industry in the past year.

Shares of Keysight have gained 41.8%, substantially outperforming the industry’s rally of 20.5%. The company’s impressive price performance can be attributed to its laudable earnings surprise history. The company surpassed earnings estimates in three of the trailing four quarters, recording average beat of 13.3%.

Analysts also seem to be optimistic about the company’s prospects as the stock is witnessing upward estimate revisions. Over the past 60 days, the Zacks Consensus Estimate for 2019 and 2020 earnings has moved upward by 17 cents for each year to $3.77 per share and $4.21 per share, respectively. Backed by these upward estimate revisions, the company currently carries a Zacks Rank #2 (Buy).

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Let’s delve deeper and analyze the factors which make Keysight a solid pick.

Upbeat Q4 Results

Keysight delivered fourth-quarter fiscal 2018 non-GAAP earnings of $1.01 per share beating the Zacks Consensus Estimate of 84 cents per share. Further, the figure increased 42.3% from the year-ago quarter.

GAAP revenues surged 19% from the year-ago quarter to $1.047 billion. Non-GAAP revenues increased 16% year over year to $1.051 billion. Non-GAAP core revenues (excluding the impact of currency and revenues from acquisitions completed within the last 12 months) increased 17% year over year. The Zacks Consensus Estimate is pegged at $1.017 billion.

Encouraging Outlook

For the first quarter of fiscal 2019, the company expects non-GAAP revenues to be in the range of $965 million to $985 million. The Zacks Consensus Estimate for revenues is pegged at $977.9 million.

Non-GAAP earnings per share for first-quarter fiscal 2019 are projected in the range of 76-82 cents per share. The Zacks Consensus Estimate for earnings is pegged at 79 cents per share.

Growth Drivers

The company’s focus on launching new solutions for growth markets like 5G, Internet of Things (IoT), next-generation wireless, high-speed datacenters and automotive & energy are key catalysts.

The company recently inked Memorandum of Understanding (MoU) with Korea-based SK Telecom. The collaboration is primarily aimed at design and development of 5G devices including performance validation and verification of technologies. The company’s acquisitions of Anite and AT4 Wireless have enriched the company’s 5G solutions portfolio further.

Further, Keysight’s 5G collaborations with the likes of ASUS, Motorola, Verizon Communications and Qualcomm Technologies, Inc., a subsidiary of Qualcomm QCOM are enabling it in achieving 5G commercialization related milestones.

Additionally, the company also announced extended collaboration with China Telecom in a bid to facilitate deployment of 5G on a commercial scale. Keysight’s robust 5G new radio (“NR”) network emulation offerings will enable trials for China Telecom’s 5G NR devices.

We believe adoption of company’s 5G testing and design solutions are anticipated to bolster the top line. The new collaborations are likely to enable the company in expanding presence in Asia Pacific.

Per ResearchAndMarkets data, global 5G market is expected to reach $251 billion by 2025, at a CAGR of around 97% from 2020. Further, per MarketsandMarkets estimates, communication test and measurement market is projected to be $6.69 billion by 2020 at a CAGR of 9.3% from the valuation of approximately $4.28 billion in 2015.

Intensive infrastructure investments for 5G push and favorable trial testing results are positives in this regard. Smart connected homes, hospitals, factories and cities along with self-driving vehicles remain key beneficiaries of 5G.

We believe on the heels of the aforementioned factors, Keysight is well poised to capitalize on the ongoing positive trends in the 5G market and strengthen its competitive position in the domain.

Bottom Line

A successful investor understands the importance of adding well-performing stocks in the portfolio at the right time. Indicators of a stock's bullish run include a rise in share price and strong fundamentals.

Taking all the pros into consideration, Keysight is a lucrative investment option at the moment.

Key Picks

Other top-ranked stocks in the broader technology sector are Upland Software UPLD and Twitter, Inc. TWTR, both flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Upland Software and Twitter is currently pegged at 20% and 22.1%, respectively.

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