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Why Is Keysight (KEYS) Down 7.6% Since Last Earnings Report?

Zacks Equity Research
·4-min read

It has been about a month since the last earnings report for Keysight (KEYS). Shares have lost about 7.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Keysight due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Keysight Outpaces Q3 Earning and Revenue Estimates

Keysight reported impressive third-quarter fiscal 2022 (ended Jul 31, 2022) results, beating both the top-line and bottom-line estimates. The strong performance during the quarter was backed by solid order growth and sustained demand across all end markets and regions. Also, the company successfully navigated the supply chain and geopolitical disruptions, which contributed to its robust performance.

Quarter Details

Revenues reported in the quarter were $1,376 million, beating the Zacks Consensus Estimate of $1,344 million and growing 10% year over year. The Communications Solutions Group generated $970 million in revenues compared with $875 million in the prior-year quarter, reflecting growth of 11%. The rise was attributable to innovation dynamics and growth across all businesses and regions. The Electronic Industrial Solutions Group generated $406 million in revenues compared with $371 million in the prior-year quarter, up 10%. The double-digit growth was primarily driven by momentum from continued investments in next-generation technologies across automotive, industrial IoT and semiconductor end markets.

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GAAP net income was $338 million or $1.87 per share compared with $254 million or $1.36 per share in the year-ago quarter. Non-GAAP net income reported during the quarter was $363 million or $2.01 per share, beating the Zacks Consensus Estimate by 22 cents, up 30.5% from the prior-year quarter. During the quarter, the orders grew 12% on a year-over-year basis.

Operating Details

During the quarter, Keysight achieved a Non-GAAP gross margin of 65% and an operating margin of 30%. CSG reported a Non-GAAP gross margin of 66.5%, expanding 80 basis points (bps) from the prior-year quarter while EISG reported a non-GAAP gross margin of 61.3%, contracting 240 bps. CSG Non-GAAP operating margin of 29.6% rose 40 bps and EISG’s Non-GAAP operating margin of 31.3% expanded 30 bps

Cash Flow & Liquidity

During the first nine months of 2022, Keysight generated $746 million cash from operating activities compared to $954 million in the prior-year period. As of Jul 31, 2022, the company had $1,847 million in cash and cash equivalents with $1,792 million of long-term debt.

Guidance

For the fourth quarter of fiscal 2022, Keysight expects revenues in the range of $1.38-$1.40 billion. Non-GAAP earnings are estimated between $1.94 and $2 per share. Full fiscal year 2022 revenue growth is expected to approach 9%. At the midpoint of fourth quarter guidance, Non-GAAP earnings per share growth for fiscal year 2022 is expected to be around 20%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 5.85% due to these changes.

VGM Scores

Currently, Keysight has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Keysight has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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