Keysight Keeps Cutting Through the Headwinds and Shares Look Attractive to Our $174 FVE

We’re maintaining our $174 fair value estimate for wide-moat Keysight Technologies after it reported fiscal second-quarter results, and continue to view shares as undervalued. Keysight beat its top- and bottom-line guidance in the quarter and raised its full-fiscal-year guide, but we think supply constraints and foreign exchange headwinds will weigh on results in the short term. We view demand as healthy, but Keysight saw slowing order growth in the quarter and a decrease in its book/bill ratio from prior quarters. We think the market had a mixed view of the strong results and macroeconomic headwinds, with shares flat after-hours. We still think shares look cheap for Keysight. We don’t think its current share price fully bakes in the long-term demand we expect for its comprehensive communications testing portfolio through wireless cycles, nor the profitability upside from its growing mix of software.