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On Wednesday, BofA Securities adjusted its outlook on Keysight Technologies (NYSE: NYSE:KEYS) shares, a prominent test and measurement company. The firm increased its price target on the stock to $150 from the previous $135 while maintaining an Underperform rating.
The revision follows Keysight's reported performance in the third fiscal quarter of 2024, ending in July, where the company experienced a slight year-over-year decline in core orders by 1%.
This marks an improvement from the 9% and 12% declines seen in the second and first fiscal quarters, respectively. The recent figures surpassed BofA Securities' estimates by $30 million, or 1%.
Keysight showed particular strength in certain areas of its business, with data center and wireline orders rising by a low double-digit percentage, and semiconductor orders increasing by a low single-digit percentage. These numbers indicate a mid-single digit decline in core orders for the remaining approximately 70% of Keysight's end markets.
The Underperform rating is reiterated by BofA Securities due to Keysight's significant exposure to the slower-growing wireless communications end market. However, the firm raised its price objective from $135 to $150 to reflect relative stability in demand.
The new price target is based on a 22 times multiple of the adjusted earnings per share (EPS) forecast for 2025, an increase from the previously used 20 times multiple.
This target multiple is consistent with the 22 times average of Keysight's peers. BofA Securities justifies this multiple by citing Keysight's above-average profit margins, balanced by its greater exposure to the wireless sector compared to its peers.
In other recent news, Keysight Technologies outperformed its Q3 financial expectations, reporting revenue of $1.2 billion and earnings per share (EPS) of $1.57. The company also witnessed a slight increase in orders for the quarter, primarily driven by commercial communications growth.
Despite a revenue decline in the Communications Solutions Group and the Electronic Industrial Solutions Group, Keysight maintains a positive outlook, forecasting slightly improved Q4 revenue and earnings.
The company has announced plans to expand its serviceable available market (SAM) and pursue mergers and acquisitions. Notably, the Spirent acquisition has received shareholder approval and is expected to close in the first half of fiscal year 2025. Additionally, Keysight anticipates a stable tax rate of 14% for multiple years.
Keysight ended the quarter with a strong cash position of $1.6 billion, having generated $255 million in cash flow from operations. The company also repurchased 1.07 million shares for $150 million.
Looking forward, Keysight sees opportunities in the autonomous vehicle market and expects to benefit from hyper scaler investments in digital infrastructure.
InvestingPro Insights
As investors digest the latest analysis from BofA Securities on Keysight Technologies, real-time data from InvestingPro provides additional context to the company's financial health and market performance. With a market capitalization of $24.04 billion and a P/E ratio standing at 30.24, Keysight reflects a valuation that demands a closer look. Notably, the company has managed to maintain a gross profit margin of 64.16% over the last twelve months as of Q2 2024, showcasing its ability to retain a significant portion of its revenue as gross profit.
InvestingPro Tips reveal that Keysight has seen a significant return over the last week, with an 8.88% price total return, hinting at a positive investor sentiment in the short term. Additionally, the company's liquid assets exceed its short-term obligations, which suggests a solid financial footing for near-term operations. For those considering a deeper dive into Keysight's investment profile, there are 7 additional InvestingPro Tips available, including insights on debt levels and profitability forecasts for the year.
While analysts anticipate a sales decline in the current year, Keysight's recent performance in the semiconductor and data center segments indicates some areas of resilience. It's also worth noting that the company does not pay a dividend, which may influence investment strategies depending on individual investor preferences for income versus growth potential. The InvestingPro Fair Value estimate stands at $132.04, providing a benchmark for investors against the current market price and the analyst target of $164.
With the next earnings date slated for August 20, 2024, market participants will be watching closely to see if Keysight can continue to navigate the challenges within the wireless communications sector and leverage its strengths in other areas of its business.
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