The technology company's earnings suggest that its overall end markets have bottomed out.
Test and measurement technology company Keysight Technologies Inc. (KEYS, 0.24%) shares surged 14.3% in the week ending Friday morning, after the market was pleased with the company's third-quarter results released earlier in the week.
Keysight Technologies' Third Quarter
There was no positive year-over-year core revenue growth or core order growth (down 13% and down 1%, respectively), nor was management predicting a bottom in any of the end markets.
Rather, the optimism comes from the fact that Keysight beat revenue expectations for the quarter and that overall conditions aren't worsening. As with the technology sector, investors are looking for early signs of a trend reversal in ordering patterns. For a company like Keysight, whose revenue is based on customers' willingness to invest in research and development (R&D), it's typically the first to be cut during an economic downturn.
Improvements continue
The good news is that progress is being made, with management expecting second-half ordering to be an improvement over first-half orders: Commercial communications orders, for example, increased double digits year over year, and semiconductor orders increased low single digits, driven by end demand from spending on artificial intelligence (AI) applications.
These improved orders almost completely offset declines in automotive, aerospace, defense and government orders.
Image source: Getty Images.
Keysight Technologies' Future Outlook
CEO Satish Dhanasekaran expects “barring further macroeconomic deterioration, we expect a more moderate recovery in 2025.” That outlook is similar to what Emerson Electric CEO Lal Karsanbhai said when discussing the outlook for Emerson's test and measurement business: “We expect revenues to turn positive in the second half of 2025 and orders to turn positive in the first half of 2025.”
So investors shouldn't get too excited too quickly, but given that this year is likely to be the bottom, the stock, trading at 25 times forward earnings, seems reasonably valued.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Emerson Electric. The Motley Fool has a disclosure policy.
