Keysight Earnings: Demand Picture Looks Weaker in Coming Quarters; Fair Value to $170 From $175

We trim our fair value estimate for wide-moat Keysight Technologies to $170 per share, from $175, after fiscal fourth-quarter guidance missed our expectations. The communications market, which is the firm’s largest, and the semiconductor market are exhibiting slower order patterns and customers are pushing out purchases by multiple quarters. These negative dynamics are more than offsetting relative strength in government and automotive markets. Keysight’s good results in fiscal 2023 have been helped in part by working through excess orders left in its backlog, which is now back to normal levels. Management cautions for a few quarters of weakness, and we now expect lower growth in fiscal 2024 behind lower demand. Still, we believe shares are undervalued. An 8% drop in after-hours trading looks like an overreaction to us, and we think savvy long-term investors have a lot to like about Keysight’s competitive positioning, growth profile, and profitability.