Keysight’s Q1 Surpasses Expectations, but Concerns Surrounding Fiscal-Year Outlook; FVE Cut to $175

We are lowering our fair value estimate for wide-moat Keysight Technologies to $175 from $180, after it opened its fiscal year with a respectable quarter but provided disappointing guidance for the year based on a weakening demand environment. The outlook fell well short of our previous expectations on both a revenue and adjusted earnings basis along a book/bill ratio of 0.94. While we are disappointed with the outlook for the year, our long-term thesis remains intact as we see Keysight continuing its dominance in testing equipment for critical communications infrastructure and additional growth of its software portfolio to achieve more recurring revenue. Despite an 8% drop in the stock during after-hours trading, we view shares as fairly valued.