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What's in the Offing for Keysight (KEYS) in Q3 Earnings?

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Keysight Technologies Inc. (KEYS - Free Report) is scheduled to release third-quarter fiscal 2019 results on Aug 21. Notably, the company has surpassed earnings estimates in the trailing four quarters, with an average beat of 16.1%.

Past-Quarter Performance

Keysight had delivered second-quarter non-GAAP earnings of $1.22 per share beating the Zacks Consensus Estimate of 98 cents. Further, the figure improved from 83 cents reported in the year-ago quarter.

Non-GAAP revenues advanced 9% year over year to $1.093 billion. Non-GAAP core revenues (excluding the impact of currency and revenues from acquisitions concluded within the last 12 months) improved 12% year over year. Meanwhile, GAAP revenues increased 10% from the year-ago quarter to $1.090 billion. The Zacks Consensus Estimate for revenues is pegged at $1.062 billion.

What to Expect in Q3?

For the third-quarter of fiscal 2019, the company expects GAAP revenues to be in the range of $1.018 billion to $1.058 billion. Meanwhile, non-GAAP revenues are expected in the range of $1.02-$1.06 billion.

Non-GAAP earnings per share are projected in the range of 97 cents to $1.05 per share.

The Zacks Consensus Estimate for revenues is pegged at $1.04 billion, indicating an improvement of approximately 4.1% from the year-ago quarter.

We note that the Zacks Consensus Estimate for earnings has remained unchanged in the past week. The Zacks Consensus Estimate for the quarter under review is pegged at $1.02 per share, suggesting growth of around 14.6% from the year-ago reported figure.

Notably, Keysight stock has returned 42.4% in the past year, outperforming the industry’s rally of 18.9%.

Factors at Play

Keysight’s focus on launching solutions for growth markets like 5G, IoT, next-generation wireless, high-speed datacenters and automotive & energy is expected to positively impact the to-be-reported quarter’s top line.

Management is also optimistic about capitalizing on key growth segments of a number of end markets. Notably, robust demand and higher investments in emerging technologies is expected to aid markets such as solutions and commercial communications, aerospace, defense and services in the third quarter. These factors in turn will aid the upcoming quarterly results.

Keysight stated that orders for 5G solutions recorded triple-digit growth year over year in the last reported quarter. In fact, the company boasts of a robust 5G portfolio comprising comprehensive set of test and design solutions enabling telecom companies to accelerate 5G deployment. This buyout is anticipated to bolster the top line in the to-be-reported quarter.

Moreover, rapid adoption of the company’s high-speed Ethernet based testing solutions, and security and application solutions are anticipated to bolster Ixia Solutions Group (ISG) segment revenues.

We believe the company’s strength in 5G testing and design solutions hold promise. The collaborations to develop of Open RAN 5G network with companies like AT&T, Xilinx, to name a few, are likely to enable Keysight in proliferating the 5G space. Alliance with Qualcomm Technologies, Inc. (QCOM - Free Report) , a subsidiary of Qualcomm remains noteworthy. These deals will help the to-be-reported quarter’s results.

Keysight recently showcased PathWave Design 2020 with robust electronic design automation (EDA) software capabilities. The new release will enable software developers to design workflow for advanced 5G, Radio Frequency (RF) technology and microwaves. The latest release is aimed at bolstering innovation in the electronics testing methods and is expected to enhance Keysight’s solutions, which in turn will favor adoption rate.

Keysightis expected to benefit significantly from latest product roll outs in strategic growth markets, which in turn will favor the top line.

Moreover, the company teamed up with Nokia to roll out the Open Test Automation Project (OpenTAP). Also, Keysight 5G test and design solutions were recently selected by Qorvo, Inc.

It is to be noted that Keysight now has four automotive customer centers globally. One in the United States at Detroit, MI, one in Europe at Boeblingen, Germany; and two in Asia at Shanghai, China and Nagoya, Japan.

We believe adoption of the company’s 5G testing and design solutions is will bolster the top line. Moreover, new customer wins are expected to aid the company in expanding presence in the United States.

However, Keysight expects its connection with the Chinese telecom giant, Huawei, to negatively impact the to-be-reported quarter’s result. This electronic measurement solutions provider was perceived as a “small direct customer” and was anticipated to benefit from 5G technological development with Huawei. The program was focused on technology verification and system program validation.

Keysight generates significant portion of revenues from outside the United States rendering it susceptible to exchange rate volatility owing to sluggishness in China and trade war. The new trade restrictions are likely to impact revenue growth in the forthcoming quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Keysighthas a Zacks Rank #3 and an Earnings ESP of 0.00%. This combination makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

The Cooper Companies, Inc. (COO - Free Report) has an Earnings ESP of +1.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutanix Inc. (NTNX - Free Report) has an Earnings ESP of +4.80% and a Zacks Rank #3.

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