Keysight shares up 8% following FQ2 beat; analysts flag record gross margins

Keysight Technologies (NYSE:) shares are trading over 8% higher in premarket Wednesday following the company’s better-than-expected .

EPS of $2.12 came in better than the consensus estimate of $1.95. Revenue increased 3% year-over-year to $1.39 billion, beating the consensus estimate of $1.38B.

“Keysight delivered a strong quarter with record second quarter revenue, record gross margin, record free cash flow, and above guidance earnings per share demonstrating the resilience of our increasingly diversified business,” said CEO Satish Dhanasekaran.

The company provided its Q3 guidance, expecting revenue in the range of $1.34B-$1.39B, compared to the consensus of $1.38B. EPS is expected to be in the range of $2.00-$2.06, compared to the consensus estimate of $1.96.

Barclays analysts highlighted “stable” demand dynamics and record gross margins.

“Orders remain stable and consistent with expectations issued last Q. EISG business lines and A&D continue to show strength, but Commercial Comms remains weak, particularly within production, as customers continue to digest inventory,” the analysts commented.

Goldman Sachs analysts added:

“We believe that the company is benefiting from its exposure to more stable and/or growing markets and products. This includes A&D (~20-25% of revenue) and autos/EVs (the company highlighted strategic wins with 2 OEMs) and a sizable software and services business (over a third of company revenue). In addition, the company executed well on margins in our view, with EBIT margins up 160 bp you,” they wrote in a note.

Still, Goldman remains Neutral-rated as declining orders (down 10% year-over-year) act as a potential overhang on the multiple.

(Additional reporting by Senad Karaahmetovic)