KEYS - Keysight Technologies slips as BofA downgrades on cooling 5G demand

2023-08-14 07:59:20 ET

Keysight Technologies ( NYSE: KEYS ) shares fell nearly 3% in pre-market trading on Monday as investment firm Bank of America downgraded the electronics testing company, citing cooling 5G demand.

Analyst David Ridley-Lane lowered his rating on Keysight Technologies ( KEYS ) shares to underperform from neutral, noting that the expectation is that third-quarter orders will decline greater-than-expected, with the weakness potentially going into fiscal 2024.

"While we view Keysight as a well-managed market share leader, the macro backdrop is likely to limit EPS growth," Ridley-Lane, who also cut the price target on Keysight ( KEYS ) to $148 from $163, wrote in an investor note.

Ridley-Lane added that the consensus is that Keysight ( KEYS ) sees a 10% year-over-year drop in third-quarter orders, but its peers have seen "more significant orders declines," with a 28% year-over-year drop for Anritsu’s Test & Measurement, a 17% year-over-year drop for National Instruments ( NATI ) and a roughly 10% year-over-year decline for Fortive's ( FTV ) Tektronix business.

The analyst added that Teradyne's ( TER ) wireless test segment does not report orders, but revenue fell 31% year-over-year in the second-quarter.

"To be clear, investment in new 5G use cases continues (e.g., industrial internet of things, satellite connectivity, consumer wearables)," Ridley-Lane added. "In prior communications cycles, our proxy for test & measurement industry revenue was flattish for two years after the 2014 peak. We see downside risks to consensus FY24 revenue growth of +4% y/y. We now forecast +1% y/y."

In addition, Ridley-Lane said Keysight's ( KEYS ) deal for ESI Group is "consistent" with the company's strategy and the company is paying a "reasonable" valuation of roughly $1B, even if it is slightly dilutive to adjusted earnings per share in fiscal 2024.

Analysts are largely bullish on Keysight Technologies ( KEYS ). It has a BUY rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates KEYS a HOLD .

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