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Downgrade to Neutral
Keysight Technologies (NYSE:KEYS) has suffered a setback as J.P. Morgan downgraded the company to a Neutral rating from Overweight. The downgrade comes as the share price rebounded despite deteriorating industrial fundamentals, limiting near-term positive catalysts.
Price Target Adjustment
J.P. Morgan also revised its December 2024 price target for Keysight Technologies down to $170 from $184, reflecting a less optimistic outlook for the company’s performance over the next few years.
Challenges in Industrial Customer Vertical
The downgrade was influenced by the observations made during the recent earnings season, which highlighted incremental headwinds in the industrial customer vertical. Most companies have reported further deterioration in demand trends, with limited signs of optimism regarding the stabilization of the end-market.
Struggles in Business Segments
The analysts expect order trends in the Communications Solutions Group (CSG) to remain stable, with modest improvements in wireline offset by challenges in wireless, and aerospace and defense reporting robust order trends. However, these positive trends are likely to be overshadowed by the challenges in the industrial market, limiting the pace of recovery despite a substantial backlog.
Expectations and Projections
Anticipating a modest pace of revenue recovery and struggles in earnings, the analysts forecast a -8% shortfall to FY’24 consensus EPS and further reduced their already below-consensus EPS expectations. They also expressed caution about the company’s ability to track toward the low end of its long-term 5%-7% revenue growth model for FY’25.
Implications for Investors
The absence of a sharp rebound in the macro environment led the analysts to expect revisions for the out-year expectations, indicating a lack of near-term catalysts for the stock. Consequently, with their lowered estimates and the absence of significant upside potential, the analysts downgraded the shares to Neutral from Overweight.
Market Ratings
Keysight Technologies (KEYS) holds a Hold rating at Seeking Alpha’s Quant Rating system, which consistently outperforms the market. The average Wall Street analysts’ rating is more positive, indicating a Buy sentiment. However, the recent downgrade from J.P. Morgan could influence these ratings in the near future.
