A month has gone by since the last earnings report for Keysight (KEYS Quick QuoteKEYS - Free Report) . Shares have added about 7.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Keysight due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Keysight Q4 Earnings & Revenues Top Estimates

Keysight Technologies, Inc. reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.62 per share, outpacing the Zacks Consensus Estimate by 10.96%. Moreover, the bottom line improved 21.8% from the year-ago quarter.

Non-GAAP revenues grew 9% year over year to $1.22 billion surpassing the Zacks Consensus Estimate by 3.17%.

Non-GAAP core revenues (excluding the impact of currency and revenues from acquisitions in a year’s time) improved 7% on a year-over-year basis to $1.20 billion.

Improving aerospace and defense vertical, uptick in 5G test solutions on accelerated 5G deployment, and demand recovery in general electronics domain across Asia Pacific led to better-than-expected performance.

Keysight improved production capacity and services operations, which contributed to the fiscal fourth-quarter performance.

Quarter in Detail

Orders improved 3% on a year-over-year basis to $1.231 billion during the reported quarter. Notably, core orders inched up 1%.

Beginning first-quarter fiscal 2020, the company’s financial reporting comprises two segments — Electronic Industrial Solutions Group (EISG) and Communications Solutions Group (CSG).  Ixia Solutions Group (ISG) segment reporting has been aligned with the CGS segment.

CSG includes commercial communications (CC) and aerospace, defense & government (ADG) end markets. CSG revenues of $901 million improved 8% year over year and 7% on a core basis. CSG contributed 74% to total non-GAAP revenues in the fiscal fourth quarter.

CC revenues of $605 million were up 5% year over year courtesy of robust 5G order growth primarily fueled by 5G investments.

5G commercial deployment led to improvement in orders from 5G device and design developers. Moreover, expansion of investments in O-RAN (or Open Radio Access Network) and virtualization technologies contributed to recovery.

Management is optimistic regarding incremental adoption of latest high performance PXie modular 5G base station test solution. The offering aids network equipment manufacturers and small cell vendors to reduce time-to-market. The solution also leverages PathWave software platform’s expertise to facilitate automation of workflows.

ADG revenues of $296 million improved 13% year over year, on higher government spending and momentum in investments aimed at defense technology modernization across the Americas and Asia. Keysight is poised to gain as economies increasingly focus on electro-magnetic spectrum operations, space, and advanced commercial technologies including 5G.

EISG revenues improved 12% year over year and 7% on a core basis to $319 million. Solid demand for the company’s solutions in next-generation process node technology testing in semiconductor end-market and strength in general electronics sector aided growth. However, macroeconomic challenges pertaining to coronavirus crisis induced softness in automotive domain weighed on revenues.

Nevertheless, increasing investment in advanced automotive technology led to double-digit growth in orders on a sequential basis across all regions. The company is witnessing uptick in ScienLab EV test solutions in Asia and Europe on government mandate-led electrification of vehicles. In a bid to capitalize on growing investments, the company rolled out a new radar target simulator for ADAS, and another solution for testing Automotive Ethernet standards compliance for in-vehicle networks during the fiscal fourth quarter. The company has also announced collaborations with SGS and Qualcomm to advance testing of Cellular Vehicle-to-Everything, or C-V2X, technology.

EISG contributed 26% to total non-GAAP revenues in fourth-quarter fiscal 2020.

Also, robust software test automation capabilities are fueling growth in Software and services revenues. This, in turn, is providing buoyancy to Keysight’s business model, which is driving recurring revenue growth and leading to expansion in gross margins.

Revenue Breakup by Geography

Americas, Europe and Asia Pacific contributed 41%, 15% and 44%, respectively, to total non-GAAP revenues in the reported quarter.

Non-GAAP revenues from Americas were $499 million, up 10% (up 8% on a core basis) year over year on robust order demand in ADG, CC and EISG domains.

Non-GAAP revenues from Europe of $185 million improved 7% (up 1% on a core basis) on a year-over-year basis. Solid order demand in CC and EISG vertical drove growth. Notably, revenues from ADG domain remained flat on a year-over-year basis.

Non-GAAP revenues from Asia Pacific of $536 million increased 8% (up 8% on a core basis) on a year-over-year basis. Strength in order demand across ADG, CC and EISG domains drove growth.

Margin Highlights

Non-GAAP gross margin expanded 210 basis points (bps) to 65.9% during the reported quarter. CSG gross margin of 66.3% expanded 200 bps, while EISG’s gross margin of 64.7% expanded 230 bps on a year-over-year basis.

Non-GAAP operating expenses climbed 4.7% to $446 million. As a percentage of revenues, the figure contracted 140 bps to 36.6%.

Non-GAAP operating margin expanded 350 bps to 29.3%.

Balance Sheet & Cash Flow

As of Oct 31, 2020, Keysight had cash & cash equivalents of $1.756 billion, compared with $1.697 billion as of Jul 31, 2020.

As on Oct 31, 2020, the company reported long-term debt of $1.789 billion, unchanged as of Jul 31, 2020.

Cash flow from operations during the quarter was $338 million compared with $183 million reported in the prior quarter.

Free cash flow was $308 million compared with the previous quarter’s $151 million.

In fiscal 2020, the company made total share repurchases worth $411 million. The company acquired approximately 2.2 million shares on the open market, at an average price of $96.55, totaling $215 million. Also, the company has exhausted $500 million share repurchase authorization from May 2019.

Notably, Keysight’s board of directors approved a new share purchase authorization worth $750 million, in effect immediately.

Q1 Guidance

For first-quarter fiscal 2021, Keysight anticipates revenues to be $1.14-$1.16 billion. Non-GAAP earnings per share are projected to be $1.32-$1.38.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 14.5% due to these changes.

VGM Scores

At this time, Keysight has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Keysight has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.