Citibank predicts a 20% rally for this little-known tech stock

Keysight Technologies could be a good buy right now, Citigroup said, citing an opportunity for investors to pull back from the stock despite the company's weaker near-term prospects.

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According to Jim Suva, an analyst with Bank of America Merrill Lynch, Keysight is rated buy by the firm, with a price target of $225 per share, which means a gain of almost 23% from Tuesday's close.

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“The problem is that we have seen this before, where a highly profitable company of high quality has been requesting teach-ins for a long time and investors are now waiting for a stock pullback that is not being driven by share losses. "This is the opportunity we have been waiting for," Suva wrote in a note he sent to clients on Wednesday. 

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There has been a sharp drop in shares of the electronics test and measurement manufacturing company Wednesday after it posted a weaker-than-expected outlook for the second quarter of its fiscal year.

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There was a dip in the company's core order rate in the January quarter after the core order rate rose by 9% in the October quarter, leading to a 10% decline in the January quarter. For the pace of orders to normalize, Keysight expects it to take a few more quarters for things to settle down. 

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In terms of revenue, Keysight expects to earn between $1.37 billion and $1.39 billion for the full fiscal year, with earnings per share expected to range between $1.91 and $1.97. Based on a FactSet report, analysts expected the company to earn $1.94 per share on revenue of $1.4 billion for the full fiscal year.

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Suva anticipates that its investor day on March 7 will serve as a catalyst for the stock.

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“In terms of sales, we expect the company to give a 3-year sales outlook for a growth rate of at least mid-single digits and a slightly higher EPS growth rate as well. The company commented on its earnings call that they see low single-digit growth in sales and EPS for FY23. As a result, this event is now de-risked," read the note.

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The company reported during its last investor day three years ago that Keysight had been able to achieve higher-than-expected growth levels, which had already been hampered by Covid closures, and geopolitical tensions such as Russia's war with Ukraine, and China's shipping restrictions.

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The Suva Group expects Keysight to continue to set conservative guidance targets that will be met and exceeded in the near future. As a further catalyst for the stock, he anticipates that new markets, such as automotive and charger testing, as well as the resumption of growth in aerospace and other end markets will serve as further catalysts for the stock. 

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“Negative order growth simply represents a return to normal supply chain operations, not share losses,” Suva wrote. 

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The share price of Keysight Technologies has increased by 1% in the last year but has declined by 9% since the start of the year.

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