Keysight Technologies, Inc. (KEYS - Free Report) recently concluded the acquisition of Eggplant from The Carlyle Group. Notably, the deal is worth $330 million.
Eggplant offers software test automation platform that utilizes analytics and artificial intelligence (AI) to program test creation and accelerate test execution.
Markedly, Eggplant’s Digital Automation Intelligence platform allows customers to test “any technology” across any mainframe device, operating system (OS) or browser at “any layer” ranging from the user interface (UI) to application programming interfaces (APIs) and even to the database.
Following this acquisition, Keysight’s software-centric solutions are likely to get a boost from Eggplant’s expertise in software test automation, and aid the acquirer penetrate new end-markets with growth opportunities.
The company will also be able to reduce time-to-market of its software-centric solutions, which is expected to boost adoption of solutions. This is likely to drive revenues in the long haul.
This, in turn, is expected to instill investor optimism in the stock in the days ahead. Notably, shares of the company have declined 4.9% in the year-to-date period compared with the industry’s fall of 5.6%.
Acquisition to Boost Software Testing Prospects
The new investment to enhance presence in rapidly growing intelligent software test market with increasing use of software-as-a-service technologies augurs well for Keysight.
Per a Technavio report, the software testing services market is projected to see a CAGR of 12% between 2019 and 2023.
The latest deal is in sync with the company’s allegiance to power its automation software testing portfolio.
The growing clout of test automation solutions among enterprises looking to cut down on testing turnaround time and improve efficiency of testing software bodes well.
Moreover, integration of AI and machine learning tools is expected to drive the demand for software testing offerings.
Further, growth in development of mobile applications, innovative web applications, and software with complex workloads is anticipated to boost spending on secure software testing solutions in a bid to enhance accuracy and predict failure points.
However, growing expenses on product development, by means of acquisition, is likely to weigh on margin expansion at least in the near term.
COVID-19 Pandemic Remains a Deterrent
The COVID-19 pandemic is expected to negatively impact Keysight’s near-term growth prospects.
Supply chain disruptions and market uncertainties stemming from the ongoing pandemic is hindering the company’s performance. In second-quarter fiscal 2020, Keysight’s Electronic Industrial Solutions Group (EISG) revenues declined 19% year over year to $242 million. Challenges pertaining to the automotive sector weighed on revenues.
Moreover, the company might not be able to fulfill the demand for its offerings due to the temporary shutdown of its production facilities. This, in turn, is likely to impede revenue growth in the upcoming quarters.
Nevertheless, the company is improving production and services operations and anticipates returning to 100% capacity by the end of the fiscal third quarter amid persistent supply chain challenges.
Zacks Rank & Key Picks
Currently, Keysight carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the broader computer and technology sector are Fortinet (FTNT - Free Report) , Mercury Systems (MRCY - Free Report) and Dropbox (DBX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Fortinet, Mercury Systems and Dropbox is pegged at 14%, 15.72% and 32.51%, respectively.
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