On Monday, JPMorgan (NYSE:JPM) upgraded Keysight Technologies (NYSE:KEYS) stock from Neutral to Overweight and raised the price target to $200 from $165.
"We are upgrading shares of Keysight Technologies to Overweight led primarily by our expectations for a broadening out of the demand drivers along with a cyclical recovery through 2025 in end-markets, which have been challenged in 2024 both on account of higher capital costs, lower underlying industry growth, and inventory digestion in certain markets," the firm said.
The upgrade also considers the anticipated benefits of Keysight's acquisition of Spirent (LON:SPT), which is expected to enhance the company's leverage to the cyclical recovery of underlying markets. Moreover, the acquisition is seen as a catalyst for significant margin improvement, aiding Keysight in reaching its long-term operating margin goals of 31%-32%.
JPMorgan notes that Keysight's earnings revision cycle is showing signs of upward momentum after a period of 12-18 months marked by downward pressure. This change is anticipated to result in KEYS shares trading at a premium valuation multiple, a reflection of the management's strong execution track record and the company's high-quality earnings.
The firm's revised earnings forecasts for Keysight reflect an increase in organic growth projections for fiscal year 2025, with the second half expected to approach the higher end of typical seasonality. The Spirent acquisition is also projected to contribute to revenue growth, leading to expectations that revenue will reach the high end of the company's long-term growth range. For fiscal year 2026, the forecast includes stronger than long-term growth, supported by normalized organic growth and a modest contribution from Spirent.
The anticipated 12% EPS growth in FY25 and 17% in FY26 underpin JPMorgan's decision to raise the December 2025 price target for Keysight Technologies to $200, based on a target P/E multiple of 24x, consistent with the company's trading multiples in recent years.
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