KEYSIGHT TECHNOLOGIES INC. $28 (New York symbol KEYS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.3 million; Market cap: $4.8 billion; Price-to-sales ratio: 1.7; No dividends paid; TSINetwork Rating: Average; www.keysight.com) makes software for testing wireless equipment. Its clients include makers of computer chips (44% of total revenue) and communications gear (33%), as well as aerospace and defence firms (23%).
Agilent (see page 33) spun off Keysight as a separate firm on November 1, 2014; shareholders received one Keysight share for every two shares they held.
In August 2015, Keysight paid $588 million for U.K.-based Anite. This firm makes wireless equipment testing software. That should improve the performance of Keysight’s testing equipment.
Thanks partly to the Anite acquisition, Keysight’s revenue in its fiscal 2016 first quarter, which ended January 31, 2016, rose 2.9%. That’s an increase to $721 million from $701 million a year earlier. If you factor out Anite and exchange rates, revenue fell 0.6%. Orders for new equipment fell 1.7%, mainly due to weaker demand from computer makers.
Before unusual items, earnings per share fell 1.8%, to $0.55 from $0.56. That’s partly because Keysight raised its research spending by 12.5%, to $108 million (or 15.0% of revenue) from $96 million (or 13.7%).
The company ended the quarter with cash of $572 million, or $3.35 a share. Its long-term debt of $1.1 billion is a manageable 23% of its market cap.
Keysight now plans to buy back up to $200 million of its shares. There are no time limits for these purchases.
Even with fewer shares outstanding, Keysight’s full-year earnings per share will likely fall 6.0%, from $2.52 in 2015 to $2.37 in 2016. The stock trades at just 11.8 times that estimate. That low p/e reflects its exposure to cyclical electronics manufacturers.
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