KEYS - Embedded Expectations Analysis - 2021 03 30
Keysight Technologies (KEYS:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 26.3x Uniform P/E. At these levels, the market has bullish expectations for the firm. Although management's concerns about order and revenue growth, R&D development, and automotive end markets suggest the potential for near-term headwinds, longer-term equity upside remains warrantedSpecifically, management may lack confidence in their ability to sustain order growth, particularly from commercial communications, and focus on next generation research and development in AV and EV applications. Additionally, they may lack confidence in their ability to sustain revenue growth, particularly from semiconductors, Electronic Industrial Solutions, and 5G solutions. Also, they may be downplaying concerns about the effects of supply chain constraints, and they may have concerns about the stability of automotive demand, as strategic investments in advanced technologies accelerate, and the sustainability of data center demand for 400-gig technology
Although management's concerns about order and revenue growth, R&D development, and automotive end markets suggest the potential for near-term headwinds, market expectations are far too bearish given the firm's SaaS transformation and industry tailwinds, suggesting longer-term equity upside remains warranted
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.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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