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Shares of Keysight Technologies look poised for a reset as both the auto and communications infrastructure industries face a difficult macro environment ahead, according to Goldman Sachs. Analyst Mark Delaney downgraded shares of the electronic design and test solutions company that supplies products to the industries like autos, to neutral from buy. He cited increased exposure to a dwindling communications infrastructure market and the company’s premium valuation relative to peers. “We expect a slowdown in telecom/communications infrastructure capex given the weaker macroeconomic backdrop, which could negatively impact Keysight’s business in our opinion,” Delaney wrote in a Tuesday note. On a valuation and price-to-earnings basis, the stock trades at a 35% to 40% premium to its peers even with limited upside opportunity, he said. The firm’s revised $189 price target, down from $196, suggests shares can gain 6% from Tuesday’s close, while other buy-rated stocks in the firm’s coverage offer 22% upside on average, Delaney noted. Despite these lingering headwinds, Delaney is positive on the stock long term, viewing the company’s products and revenue from recurring software, among other things, as tools that can help Keysight maintain a solid financial standing even if capital expenditures slow. “Importantly, we consider Keysight to be a leader in the test market and one of the better executing companies in our coverage (given its strong margins and market share) and we would look to be more positive on the stock again if we see signs of orders re-accelerating and/or if we see a better set-up in terms of fundamentals relative to Street estimates,” he wrote. Delaney slashed his price target on shares of Rivian to $19 from $41 a share in the same note, despite confidence in the company’s long-term fundamentals. “We lower our revenue estimates on lower shipment assumptions to better reflect company ramp progress and the supply chain, while our EPS estimates move up on fewer loss-making unit sales in 2023 and on lower” operating expenses, he wrote. Delaney also named General Motors and Tesla as his favored picks in 2023, noting that both companies are leading the way in autonomy. “We prefer TSLA and GM (with Tesla a cost and tech leader in EVs/clean mobility, and both Tesla and GM Cruise among the leaders in autonomy, in our opinion),” the analyst said. — CNBC’s Michael Bloom contributed reporting
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