Test and measurement technology company Keysight Technologies(NYSE: KEYS) stock is up a whopping 14.3% in the week to Friday morning. The move comes as the market warmed to its third-quarter earnings released earlier in the week.
Keysight Technologies' third quarter
It's not that its year-over-year core revenue growth or core orders growth turned positive (down 13% and 1%, respectively), and it's not that management called the bottom in its end markets.
Instead, the optimism comes from Keysight beating revenue expectations in the quarter, and its overall conditions are not worsening. As with the technology sector, investors look for early signs of a trend reversal in order patterns. That's especially the case with a company like Keysight, whose revenue is based on its customers' willingness to invest in research and development (R&D) -- usually the first thing to get cut in a slowdown.
Improvement coming
The good news is that management sees its second-half orders improving over its first-half orders, and there are pockets of progress. For example, its commercial communications orders had a double-digit rise on a year-over-year basis, and its semiconductor orders saw a low-single-digit rise, driven by end demand from spending on artificial intelligence (AI) applications.
Those improvements in orders almost fully offset declines in automotive, aerospace, and defense & government orders.
Image source: Getty Images.
Where next for Keysight Technologies
CEO Satish Dhanasekaran expects "a more gradual recovery in 2025, barring any further macroeconomic degradation." This outlook is similar to that given by Emerson Electric CEO Lal Karsanbhai when discussing Emerson's test and measurement business outlook: "We foresee sales turning positive there in the second half of 2025 with orders turning positive in the first half of 2025."
As such, investors shouldn't expect too much too soon, but given that this will likely prove to be a trough year, the stock, trading at 25 times expected earnings, looks like a decent value.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Emerson Electric. The Motley Fool has a disclosure policy.
