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Factors Setting the Tone for Keysight (KEYS) in Q4 Earnings

Keysight Technologies Inc. KEYS is set to release fourth-quarter fiscal 2018 results on Nov 20.

Notably, the company has surpassed earnings estimates in three of the trailing four quarters,coming in line in one, recording average beat of 12.8%.

In third-quarter fiscal 2018, the company delivered non-GAAP earnings of 89 cents per share beating the Zacks Consensus Estimate of 80 cents. Further, the figure increased 45.9% from the year-ago quarter.

Net revenues surged 21% from the year-ago quarter to $1.004 billion and outpaced the Zacks Consensus Estimate of $959 million. Non-GAAP core revenues (excluding the impact of currency and revenues from acquisitions completed within the last 12 months) increased 15% year over year.

Guidance & Estimates

For the fourth quarter of fiscal 2018, Keysight envisions non-GAAP revenues to be in the range of $1-$1.2 billion. The corresponding Zacks Consensus Estimate is pegged at $1.02 billion, indicating growth of approximately 12.8% from the year-ago quarter.

Non-GAAP earnings per share for fourth-quarter fiscal 2018 are projected in the range of 85-91 cents per share.

We note that the Zacks Consensus Estimate for earnings has remained stable in the past week. The Zacks Consensus Estimate for the quarter under review is pegged at 91 cents per share, representing growth of approximately 28.2% from the year-ago quarter.

Factors Likely to Influence Q4 Results

Keysight’s buyout of Melbourne, Australia-based Thales Calibration Services, a subsidiary of Thales Group remains a notable development in the quarter under review. The acquisition is likely to expand the company’s current electrical portfolio,in the defense and security space, particularly across Australia.

The growing demand for electric and hybrid cars also bode well for the company’s product portfolio, which was enhanced with the buyout of Scienlab. Additionally, the acquisitions of Ixia, Anite and AT4 Wireless have enriched the company’s 5G solutions portfolio.

We believe that the company's focus on expanding its software portfolio on the back of strong demand for its solutions is likely fuel growth. This along with key acquisitions in line with the company's goals amplifies its growth prospects.

The company’s continuous focus on launching new solutions for growth markets like 5G, Internet of Things (IoT), next-generation wireless, high-speed datacenters and automotive & energy bodes well for the top-line.

In fact, Keysight stated that orders for 5G solutions recorded triple-digit growth year over year in the last-reported quarter. In the quarter under review, the company introduced S9100A, a scalable and compact 5G base station. The new manufacturing test solution is aimed to enable accelerated deployment of 5G networks.

Further, increasing radar technologies for autonomous driving, and high-power devices and applications are driving demand for the company’s solutions in this end market.

The company’s recently unveiled new high frequency Keysight E8740A automotive radar test solution is anticipated to generate incremental revenues, going forward. The new solution assists radar-driven, advanced driver assistance systems (ADAS) to identify and alleviate collision risks on a real time basis.

Rapid adoption of company’s high-speed Ethernet based testing solutions as well as its security and application solutions are anticipated to bolster Ixia Solutions Group (“ISG”) segment revenues.

In a bid to enhance security, the company recently extended visibility of Ixia’s CloudLens platform into Microsoft MSFT Azure’s Infrastructure as a Service (IaaS). CloudLens offers a sensor such that it can be configured utilizing Azure’s APIs to allow the user in forwarding network traffic to the sensor without installing sensors individually across every workload.

Keysight’s collaborations with the likes of ASUS, Motorola, Verizon Communications Inc and Qualcomm Technologies, Inc., a subsidiary of Qualcomm QCOM are anticipated to aid it in achieving 5G commercialization related milestones.

However, competition from Rohde & Schwarz GmbH & Co. KG, Anritsu Corporation, and Fortive Corporation, remains a concern.

What the Zacks Model Unveils?

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.
 


Keysight has a Zacks Rank #3 and an Earnings ESP of -2.76% which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock That Warrants a Look

Here is a company, which, as per our model, has the right combination of elements to post an earnings beat this quarter:

Bitauto Holdings Limited BITA has an Earnings ESP of +12.36% and a Zacks Rank #2. The company is slated to report third-quarter 2018 earnings on Nov 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

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