Valens Equity Weekly Insights - 2023 10 31
Keysight Technologies (KEYS) owns the most popular testing hardware solutions for circuits. It has developed a CAD-like SaaS software solution for its customers to now design their circuits virtually, leading to a profitability inflection. Uniform Accounting highlights that the market is not pricing in this inflection at all, suggesting the potential for equity upside.Keysight Technologies is a critical vendor to the IoT movement. Everything in IoT relies on circuits, and Keysight dominates the market for testing and designing circuits. On top of that, its CAD software for circuit design is undergoing a SaaS transformation, which has the potential to inflect returns like it did for AutoDesk and Adobe. Since 2018, Uniform ROA has expanded from 6% to 19% in 2022. Keysight should be able to keep expanding its Uniform ROA, but the market is pricing returns to stagnate.
Keysight's management is closely aligned to focus on growth and margin expansion, which should push management to keep expanding the SaaS model.
Management confidence in the Q3 earnings call about growth, consumer spending, and demand from the EV industry suggest reason to believe momentum will remain strong.
Genpact (G) and ExlService Holdings (EXLS) are being removed from the Conviction Long List. The economy has slowed down and as a result market sentiment towards BPO companies has soured.
KEYS
Keysight Technologies is a technology company. The company's segments are: Communications Solutions Group, which provides electronic design and test software, instruments and systems and related services used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment; Electronic Industrial Solutions Group, which provides test and measurement solutions and related services across a set of electronic industrial end markets; and Ixia Solutions Group, which helps customers design, validate and support the performance and security of their networks and associated components and applications.
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