Morgan Stanley (NYSE:MS) has upgraded its rating of Keysight Technologies (NYSE:KEYS), a provider of automation solutions, from 'equal-weight' to 'overweight', according to a note released on Friday. The firm has maintained its price target for the technology stock at $165 per share, suggesting an approximately 24% upside from Thursday's closing price of $133.12.
The upgrade comes in the wake of a significant downturn in Keysight's stock, which has seen a slip of over 22% since the start of 2023, with nearly 19% of this decline occurring in the past three months. Despite this downward trend, Morgan Stanley analyst Meta (NASDAQ:META) Marshall views the current situation as a strong buying opportunity for investors.
Particularly noteworthy is Keysight's substantial exposure to both 5G and artificial intelligence megatrends, which Marshall predicts will help the company achieve a long-term growth rate of between 5% and 7%. "Factoring in margin leverage, we believe there is a pathway to double digit earnings growth beginning in FY25, and as such, we believe current valuation (17x FY24 / 15x FY25) is too cheap and we are buyers of the dip," Marshall stated.
Keysight's exposure extends to other areas such as silicon photonics, AI/ML, 6G research on the communications side, stable AD&G spend, and investment in autos and semiconductors. These key growth drivers, coupled with potential share gain, could allow Keysight to achieve its projected long-term core growth.
However, Morgan Stanley acknowledges the uncertain near-term environment where both the commercial communications and EISG businesses remain muted due to production slowdowns. The firm has slightly lowered its estimates in the near term as a result.
Despite these challenges, Morgan Stanley remains optimistic about Keysight's prospects in a recovering macro environment, predicting a return to double-digit earnings growth for the company. This 'overweight' rating from Morgan Stanley contrasts with an average Wall Street rating of 'buy' and an SA Quant rating of 'hold'.
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