Keysight Technologies Inc.KEYS has caught the eye with impressive price performance over the last two years. The stock, which was valued at $30.65 at Sep 19, 2016, currently trades close to $64.14, reflecting more than a two-fold jump.
Notably, the company has gained approximately 6.1% since it reported third-quarter fiscal 2018 results on Aug 21. Year to date, shares of Keysight have returned approximately 54.2% outperforming the industry 's rally of 34.7%. The stock has also outperformed S&P 500 index's rise of 9.5% in the same period.
The outperformance can primarily be attributed to robust growth in orders driven by solid adoption along with higher investments in emerging technologies. Broad-based demand in markets such as solutions and commercial communications, aerospace, defense and semiconductor and services remains a key catalyst.
We note that Keysight has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in three of the trailing four quarters, recording a positive average earnings surprise of 12.8%.
Let's delve deeper and analyze the factors driving Keysight's robust quarterly performances.
Key Growth Drivers
The company's new solutions catering to growth markets like 5G, Internet of Things (IoT), next-generation wireless, and high-speed datacenters as well as automotive & energy hold promise.
Further, increasing electronic content in vehicles, radar technologies for autonomous driving along with high-power devices and applications are driving demand for the company's solutions in this end market.
We believe that the company's focus on expanding its software portfolio on the back of strong demand for its solutions will fuel growth.
Tie-Ups Bolstering Growth Prospects
Keysight recently collaborated with InnoLight Technology to demonstrate interoperability in 400 Gigabit Ethernet ("GE") ecosystem. Notably, InnoLight's OSFP optical transceivers utilized Ixia's test system.
Both the companies are elated as the interoperability test with multimode and single mode OSFP optical transceivers successfully attained 3.2 Tbps total test traffic throughput.
Likewise, the company's partnerships with the likes of Verizon Communications VZ ,Qualcomm Inc, Motorola Mobility LLC, ASUS, among others are aiding it to achieve 5G commercialization related milestones.
Buyouts Fueling Top Line
Acquisitions have always been one of Keysight's primary growth strategies. In the fourth quarter, Keysight acquired Melbourne, Australia-based Thales Calibration Services, a subsidiary of Thales Group.
Thales Calibration provides services to industries which includes defense, commercial, medical, petro-chemical and pharmaceutical. The services aid in keeping the public safe and secure worldwide.
The buyout is likely to expand the company's current electrical portfolio, aiding Keysight in gaining foothold in the defense and security space in Australia.The acquisition will help Keysight to become a renowned calibration and support services organization.
Similarly acquisitions like Ixia (January 2017), Electroservices Enterprises and Anite (August 2015), and Eagleware-Elanix (August 2005) have aided growth by expanding its product portfolio at various levels and adding competence.
We expect the acquisition synergies to continue driving Keysight's top-line performance in the quarters ahead.
Upbeat 3Q18, Encouraging Guidance
Keysight's third-quarter revenues were up 21% year over year to $1.004 billion and beat the Zacks Consensus Estimate of $959 million. Increase of 15% in orders and rise of 12% in core orders drove year-over-year revenue growth.
The company delivered non-GAAP earnings of 89 cents per share surpassing the Zacks Consensus Estimate by 9 cents. The figure surged 45.9% from the year-ago quarter.
Keysight provided an encouraging guidance for the fourth quarter. The company expects non-GAAP revenues to be in the range of $1-$1.2 billion for the fourth quarter of 2018. The Zacks Consensus Estimate for revenues is pegged at $1.02 billion representing year-over-year growth of 12.8%.
Positive Estimate Revisions
Over the last 30 days, fiscal 2018 estimates were revised, driving the Zacks Consensus Estimate to $3.15 per share from $2.99 per share. The figure reflects year-over-year growth of 24.5%.
Zacks Rank and Other Stocks to Consider
Keysight sports a Zacks Rank #1 (Strong Buy).
Paycom Software, Inc. PAYC and Logitech International S.A. LOGI are some other top-ranked stocks in the broader technology sector. Both the stocks sport a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .
Long-term earnings growth rate for Paycom and Logitech are currently pegged at 25.58% and 10%, respectively.
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