Keysight Technologies Stock Forecast: Is It a Buy?

Keysight Technologies [NYSE: KEYS] stock has had a strong start to 2019 – shares are up by one-third since December. But is this trend likely to continue, or is there trouble on the horizon?

What is Keysight Technologies?

Keysight Technologies [NYSE: KEYS] is a U.S. manufacturer of electronics test and measurement software and equipment that currently employs more than 12,000 people.

It produces a variety of electronic instruments, including logic analyzers, signal generators, oscilloscopes, and atomic force microscopes.

Customers from more than 100 countries in the telecommunications, aerospace, manufacturing, and electronics industries rely on Keysight Technologies products.

The company was established in 2014 as a spin-off of the electronic test and measurement division at Agilent Technologies, which was itself a spin-off from Hewlett-Packard. Keysight Technologies has its headquarters in Santa Rosa, California, and the company’s current CEO and president is Ronald S. Nersesian.

Major competitors of Keysight Technologies include Teradyne [NASDAQ: TER], National Instruments [NASDAQ: NATI], ESCO Technologies [NYSE: ESE], and Viavi Solutions [NASDAQ: VIAV].

Is Keysight Technologies Stock Undervalued?

Despite the strong performance of Keysight stock [KEYS] thus far in 2019, it’s very possible that shares will continue to grow in the short and medium term.

One important factor for the future growth of Keysight shares will be the spread of 5G communications technology. 5G is the “fifth generation” of broadband using an additional high-frequency spectrum, which should allow for more stable connections and faster speeds.

Thus far, the rollout of 5G has been very gradual and piecemeal, with a few 5G-capable phones scheduled for release later this year. Once it arrives, however, 5G is expected to have a major impact on mobile communications.

In December 2018, Keysight announced that its 5G network emulation solution was used to demonstrate a proof of concept for an Industrial Internet of Things (IIoT) application, in collaboration with Qualcomm [NASDAQ: QCOM].

Keysight is betting heavily on its 5G portfolio, which includes product design validation solutions at all 7 layers of the OSI model in order to help customers accelerate their own 5G projects.

A series of acquisitions in recent years–including Ixia, Anite, and AT4 Wireless–indicate that Keysight has a long-term strategy in place for its 5G solutions.

Intelligence firm Research & Markets predicts that the global 5G market will reach $251 billion by 2025, which makes it a very promising area of investment.

Beyond 5G, the core financial numbers for Keysight look strong. During the Q1 2019 earnings conference call, Keysight reported that revenues exceeded expectations, surpassing $1 billion for the third quarter in a row. What’s more, the company also outperformed in terms of earnings per share, which were at $0.93.

Given the fact that Keysight shares have a price-to-earnings ratio of 25 at the time of writing, the stock may be undervalued, even after its success story thus far in 2019.

What are the Risks of Investing in Keysight Technologies Stock?

Despite the strong promise of Keysight stock, however, it’s not necessarily all smooth sailing ahead.

The fate of Keysight shares will likely be intimately linked with the rollout of the 5G network technology. However, in recent weeks a number of issues have emerged surrounding the 5G rollout.

For one, upgrading to 5G is estimated to cost $200 billion per year for telecommunications companies, which may prove too expensive to turn a profit. In addition, new sanctions have effectively blocked the Chinese telecom provider Huawei from being used on U.S. networks.

This last news story may prove especially worrisome for Keysight [NYSE: KEYS], which derives much of its revenue from outside the U.S. The growing trade war between the U.S. and China, as well as the ongoing slowdown in the Chinese economy, should both be significant areas of concern for the company.

Another issue is the fact that Keysight isn’t alone when it comes to 5G solutions providers. With such a lucrative market up for grabs, a number of companies are prepared to offer some stiff competition to Keysight. Still, there’s no reason to believe right now that Keysight won’t be able to fully profit from the 5G opportunity.

The good news is that while it’s significant, 5G is far from Keysight’s only area of potential growth. The company’s core business of electronic instruments will continue regardless of any 5G obstacles and kinks that still need to be worked out along the way.

Keysight Technologies Stock: Buy or Sell?

Keysight shares have had quite the performance to kick off 2019, which has led some investors to question whether the stock can maintain this rally in the future. However, with a P/E ratio of 25, the stock is likely undervalued, and the share price ceiling is still a long ways off.

Due to the recent surge in valuation and the potential for growth in the future, Keysight continues to be supported by fundamental tailwinds.

With the 5G wireless network rollout closer than ever on the horizon, and a solid suite of financial ratios to back it up, Keysight appears to be a solid investment in the foreseeable future.