Electronic measurement and test designing company Keysight Technologies, Inc. (KEYS) has capitalized on the COVID-19 pandemic tailwinds to gain 58% over the past year. The company has scaled up its operations significantly over the past year to launch 5G integrated technologies in the market. This has generated stellar growth in its financials, allowing its  stock price to hit  its all-time high of $155.50 on January 16.

However, the stock’s higher-than-industry-average valuation has led to a 1.1% dip in its price over the past month as investors began rotating away from growth stocks to value stocks in earnest.

Nevertheless, given an accelerated digital transformation as the world adapts to a widespread adoption of virtual lifestyles and remote work structures, we expect KEYS to advance significantly in the coming months.

Click here to Check out our 5G Industry Report for 2021

Here’s what could shape KEYS’ performance in the near term:

Expanding Operations and Market Reach

Amid the ongoing clean energy drive, KEYS has been developing new products to reduce  power consumption by optimizing battery systems. In this regard, the company launched an event-based power analysis software for optimized battery systems on IoT.

To consolidate its vested interests in the 5G sector, the company acquired protocol decoding and ancillary solutions developer Sanjole on February 22, 2021. A couple of days before this acquisition, KEYS launched a 5G test solutions platform to establish industry’s first 5G new radio data connection.

In addition to this, the company has been upgrading its software portfolio to incorporate digital automation and artificial intelligence. It also partnered with Transphorm to create power supply reference designs to reduce the overall product costs and accelerate time to market.

Impressive Financials

KEYS’ revenues have increased 8% year-over-year to $1.18 billion in the fiscal first quarter, ended January 31, 2021. This can be attributed to a 7% rise in orders received to $1.22 billion. Its non-GAAP net income rose 12.5% over the same period last year to $270 million, surpassing its  quarterly GAAP top-line growth. The company’s non-GAAP EPS has increased 13.5% from the year-ago value to $1.43.

KEYS has generated $4.31 billion in  revenues over the past year and gross profits worth $2.58 billion over this period. Its trailing 12-month gross profit margin of 60.03% is 24.6% higher than the industry average  48.19%. Its net income margin of 14.77% is 226.1% higher than the industry average  4.53%. Also, the company’s ROE, ROA and ROTC margins of 19.09%, 8.49% and 9.24%, respectively, compare favorably with their  industry averages.

The company has maintained a growth trajectory over the long term. Its revenues and EBIT have risen 9.3% and 59.4%, respectively, over the past three years, while its net income has increased 94.1% over the past three years. Its  EPS has grown 92.8% over the same period.

POWR Ratings Reflect Rosy Prospects

KEYS has an overall rating of A, which equates to Strong Buy in our POWR Ratings system.

It has an A grade  for Quality, and B for both Growth and Momentum. These grades are justified, given the company’s price performance and financial growth over the past year. Moreover, analysts estimate KEYS’ EPS and revenues will rise 70.5% and 11.4% respectively, for the quarter ending April 2021.

KEYS is ranked #8 of 28 stocks in the Technology – Electronics industry. Click here to check out additional ratings for Value, Sentiment and Stability.

There are 15 other stocks in the Technology – Electronics industry with an overall rating of A or B. Click here to view them.

Bottom Line

With the worldwide growth of 5G, major companies have begun upgrading their existing  equipment, which is driving demand for KEYS’ offerings. While 5G is available in selected areas, the technology is still not commonly used. Because  KEYS’ technology gives it a global  footprint, the company should witness a robust  rise in revenues in the foreseeable future. Given its growth potential, we think the stock is a good investment bet despite its slightly higher valuation.

Click here to Check out our 5G Industry Report for 2021

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KEYS shares were trading at $139.00 per share on Thursday afternoon, down $4.64 (-3.23%). Year-to-date, KEYS has gained 5.23%, versus a 2.32% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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