mercredi 28 août 2019

Keysight Technologies (KEYS)

Last may, I saw that Giverny Capital had a recent position in Keysight Technologies (KEYS) which is an equivalent of Ametek (AME) for people like me who like shortcuts. Last quarter, Giverny increased their position by more than 100%. They seem to have a lot of conviction in this stock. 

Let's continue a bit with my shortcut between AME and KEYS: Both provide many measure instruments (oscilloscopes, meters, generators, network tests, etc). These instruments are probably a bit different from one company to the other, but they're mostly electronic instruments used for various measures which aren't probably useful for someone like you and me.
There's no fashion there, unlike Apple, for instance. There's no government regulations (not an industry where consumers could be hurt or abused, like pharma or credit companies). It's a sector that's probably linked a bit to the general state of the economy (potential impact with a recession), but much less than banks and car dealers.

The growth is there. The margins are improving. While not great, the ROE is OK.

Estimated EPS growth is OK for analysts (around 10% per year). However, the company keeps on beating estimates by a wide margin (beaten by 10 to 20% over the 4 last quarters). So, it looks like we could be more enthusiastic about what's coming than what's estimated.  

 Here's the results of the last 4 years:

Revenues: 2,9B
EPS: 1,95$

Revenues: 3,2B
EPS: 0,56$

Revenues: 3,9B
EPS: 3,24$

Revenues: 4,3B (estimated)
EPS: 3,95$

KEYS was hurt by a big  income tax rate in 2017. I don't know why, but that explains the big drop in EPS. Apart from that, we can see that revenues are growing, year after year.

Currently, you pay 20 times next year's earnings for such a company. On Value Line, you can't see earnings predictability because the stock is a little bit too young (spin-off from Agilent Technologies about 5 years ago). But earnings predictability is between 90% and 100% for Ametek. So you could probably expect something similar. Paying 20 times next year's earnings for a stock very predictable is a fair price to pay in my opinion.

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