Keysight Technologies Inc. (NYSE:KEYS) shares are trading higher on Monday after JP Morgan analyst Samik Chatterjee upgraded the company to Overweight from Neutral and raised the price target to $200 from $170.
The analyst' bullish stance reflects expectations of broadening demand drivers and a cyclical recovery in end-markets through 2025.
After facing challenges in 2024, including higher capital costs, slower industry growth, and inventory digestion, the analyst sees recovery driven by the Spirent acquisition.
Chatterjee says that this will enhance Keysight's leverage in cyclical markets and improve margins through operational synergies, moving toward a long-term target of 31% – 32% operating margins.
With earnings revisions showing upside after recent downward pressures, the analyst expects Keysight to return to premium valuation multiples, reflecting management's strong track record and high-quality earnings with significant leverage on modest revenue gains.
The analyst raised FY25 organic growth forecasts, anticipating stronger revenue growth, especially in the second half, and factoring in Spirent's contribution. This leads to a forecast of 12% EPS growth in FY25 and 17% in FY26.
Chatterjee expects demand drivers to broaden beyond the current focus on AI as the company transitions from FY24 to FY25.
With lower interest rates and capital costs, the analyst anticipates increased customer spending, particularly from traditionally cautious sectors, adds the analyst.
The analyst says that includes stronger demand from telecom customers, growth in semiconductor capital spending, and potential improvements in consumer and industrial demand.
This will benefit R&D and production test demand from a wider range of customers, including smartphone chipset suppliers and industrial technology companies, adds the analyst.
The analyst writes that Keysight is positioned to benefit from a more favorable industry environment compared to the challenges faced in FY24.
Investors can gain exposure to the stock via VictoryShares THB Mid Cap ETF (NASDAQ:MDCP) and American Century Mid Cap Growth Impact ETF (NYSE:MID).
Price Action: KEYS shares are up 3.14% at $171.73 at the last check Monday.
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