Keysight (KEYS, Financial) generated +20% adjusted earnings growth during the quarter on +9% growth in revenue as its high-margin software sales continue to grow at attractive, double-digit rates. Keysight's hardware and software solutions are increasingly tailored to research and development departments working on cutting-edge technology standards, such as 800 gigabit Ethernet and various upcoming iterations of 5G for wireless. The Company is also positioned well to serve the automotive industry's aggressive shift into electric vehicle (EV) and autonomous driving (AV) development. Keysight has not traditionally served the automotive industry to any great extent, prior to the EV and AV boom. However, Keysight sells laboratory solutions to help test protocols across the rapidly increasing ecosystem of EV and AV system and sub-system manufacturers. For example, during the quarter GM announced a $7 billion increase to its $20 billion AV and EV development budget. Keysight's focus on this attractive end-market growth is underappreciated as the stock continues to trade at below-market earnings multiples. We think the Company's superior profitability profile, combined with attractive and sustainable growth and undemanding forward earnings multiple, warrants a full position in the portfolio.
From David Rolfe (Trades, Portfolio)'s Wedgewood Funds fourth-quarter 2020 shareholder letter.
