Why Keysight Technologies Stock Sank This Week
Key Points
Keysight posted big sales and earnings beats in fiscal Q3.
The company also issued full-year guidance that crushed Wall Street estimates.
Keysight is facing some supply chain constraints that could lead to softer growth and margins in the near term.
Keysight Technologies (NYSE: KEYS) stock got hit with a double-digit pullback this week, falling 11.7% across the stretch. The S&P 500 fell 1.9% over the same period, and the Nasdaq Composite fell 2.8%.
Stocks broadly pulled back this week in response to macroeconomic concerns, and many technology hardware specialists with growth stories connected to artificial intelligence (AI) also faced valuation pressures due to concerns about high capital expenditures. Keysight also published its latest quarterly report, and its stock sold off as investors focused on a potential headwind highlighted by management in the company's conference call.
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Keysight actually delivered strong quarterly earnings beats
Following Tuesday's market close, Keysight published results for the third quarter of its current fiscal year -- which ended July 31. The company posted non-GAAP (adjusted) earnings per share of $3.07 on revenue of $1.85 billion, easily surpassing the average analyst estimate's call for adjusted earnings per share of $2.48 on sales of $1.75 billion. Sales were up 37% year over year in the quarter, and adjusted earnings per share increased 78.5%.
Along with its quarterly report, Keysight said it expected full-year sales to be between $1.93 billion and $1.95 billion -- topping the average analyst estimate's call for sales of $1.83 billion. Adjusted earnings per share are projected to be between $3.34 and $3.40 -- beating the average analyst target's call for earnings of $2.68 per share.
Investors focused on a warning from management
Keysight delivered the kind of quarterly results and forward guidance that might normally be expected to drive strong gains for a stock, but the otherwise encouraging report arrived with a warning. Speaking during the company's earnings conference call, CEO Satish Dhanasekaran said that the company's near-term sales performance would be dictated by the supply chain environment.
Demand for Keysight's testing and emulation solutions is clearly quite robust, but the company appears to be facing some challenges when it comes to acquiring necessary components. So while performance looks poised to remain strong in the current quarter, there's a risk that sales growth and margins will be significantly softer in the next fiscal year.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Keysight Technologies. The Motley Fool has a disclosure policy.