KEYS - Embedded Expectations Analysis - 2021 06 16
Keysight Technologies (KEYS:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 27.1x Uniform P/E. At these levels, the market is pricing in somewhat bullish expectations for the firm. However, although management's concerns about their backlog, the automotive end market, and pent-up demand suggest the potential for near-term headwinds, longer-term equity upside remains warrantedSpecifically, management may lack confidence in their ability to remain disciplined in their capital deployment, sustain 5G solutions wins, and maintain ARR from their backlog. Management may also be overstating the potential of Open RAN and the capabilities of their on-site fab to control custom integrated circuits (ICs), and they may lack confidence in their ability to clear their backlog. Finally, they may have concerns about the sustainability of automotive end market production and the persistence of pent-up demand for their products, particularly in their aerospace, defense and government business
Although management's concerns about their backlog, the automotive end market, and pent-up demand suggest the potential for near-term headwinds, market expectations are overly pessimistic 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
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- 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
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