Well, I think this might be the best Conference Call Review that I get to write this quarter and it is for Keysight. I haven’t done work on Autodesk yet, but this call went pretty well for Keysight.
First, let’s review the numbers. Revenue for the quarter was $735M which was near the top of the guidance but basically flat from last year. Remember, that last year’s number did not include Anite (which cost Keysight $600M). So, the year over year direct comparison is down 8% year over year. Profit for the quarter was $88M or $0.51 per share. That is down about 8% from last year. The reason is that the costs of operating Anite have added to the Operating Expense of the business. The company also repurchased $42M of the $200M shares that have been authorized for repurchase. With all of that the stock has jumped from $26 per share to $30.50 since this announcement and conference call.
Why is that? Well, I think the Market was actually expecting much worse news than it got. Why is that? Essentially, the analysis boils down to the Communications Business. The company now known as Keysight used to be part of Hewlett-Packard. When I was a Engineer on the bench, I preferred HP test equipment when I could get it. It was always easy to use and reliable. Communications has been a huge business for Keysight for a very long time (well if I used it, it has to be old). The problem is that Communications Equipment is in a huge funk and has been for a very long time. You would think with the growth of the Internet and the proliferation of Wireless Services that Communications Equipment would be growing. But it is not and has not been a great industry for a long time. Why that is will be in another post. But if your customers are not doing well, then it is hard to sell them a lot of gear.
So, what does that mean for the stock? Well, the bump from $26 to over $30 is nice, but if you compare it to a year ago it is actually slightly down after the bump. To me, investing is not day trading. I can’t time the stock market, so I look for long term trends. The question really is what will Keysight do with its cash? Right now, it is doing small amounts of stock buy back. And it says it is considering M&A. But if you are going to generate almost $90M in cash a quarter, I strongly urge Management to consider a dividend. That way the investor gets their money back and can put it in faster growing vehicles. If I were on the Board of Directors, I would be pushing for a $0.25 per share dividend each quarter. There would still be additional cash being built and shareholders would get some of their value. I don’t see huge growth or decline for the shares unless there is a significant market change external to the company. So, do you want to hold a stock for it to do very little?
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