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3 Office Equipment Stocks to Watch in a Challenging Industry

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Aniruddha Ganguly
·6 min read
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The Zacks Office Automation and Equipment Industry is facing supply-chain disruption due to the coronavirus pandemic along with a tough operating environment and a saturated market. Further, coronavirus-led remote working is hurting demand for office products. Moreover, macro-economic slowdown, increasing forex risk in emerging markets and heightened price competition are hurting industry participants.

Nevertheless, industry participants like Canon (CAJ), Seiko Epson (SEKEY) and Pitney Bowes (PBI) are gaining from growing demand for coronavirus-led medical equipment systems and Inkjet printers for office, industrial and commercial uses.

Industry Description

The Zacks Office Automation and Equipment Industry comprises companies that provide products and services related to printing solutions, healthcare and industrial businesses. The industry participants are located in Japan and the United States.

3 Trends Shaping the Future of the Office Automation and Equipment Industry

Supply-Chain Constraints Hurting Growth: Companies in the industry are suffering production and supply-chain constraints due to the coronavirus outbreak in China and shelter-in-home guidelines globally. Additionally, increased product offerings from local manufacturers along with their low-cost alternatives are forcing industry participants to slash prices. This is eating into the industry participants’ bottom line.

Sluggish Demand for Office Equipment Mars Prospects: Soft demand for copiers and office equipment due to increasing adoption of smartphones and portable devices has been detrimental to the industry’s growth. Heavy investments in technology to innovate and customize products specific to client requirements is dragging down margins. Additionally, with product life cycles being short, investments in research and development are increasing.

Remote Working Lowering Demand: The increasing adoption of bring-your-own-device (BYOD) in offices is boosting demand for automated software solutions, thereby lowering the need for office equipment and printers. Moreover, accelerating digital exchange of information, particularly aided by the coronavirus outbreak, has lowered print volume. Markedly, the coronavirus-induced work-from-home wave has boosted demand for video communication and remote working solutions provided by the likes of Zoom (ZM), Cisco (CSCO), Microsoft (MSFT) and others. This is expected to mar industry participants’ prospects.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Office Automation and Equipment industry is housed within the broader Zacks Computer And Technology sector. It carries a Zacks Industry Rank #133, which places it in the bottom 48% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions it appears that analysts are pessimistic on this group’s earnings growth potential. Since Dec 31, 2019, the industry’s earnings estimates for the current year have moved 72% south.

Despite the gloomy industry outlook, few stocks have the potential to outperform the market. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Underperforms S&P 500 & Sector

The Zacks Office Automation and Equipment industry has underperformed the Zacks S&P 500 composite as well as its own sector in the past year.

The industry has lost 31.1% over this period against the Zacks Computer and Technology sector’s increase of 39.9% and the S&P 500’s rally of 17.3%.

One Year Price Performance

 

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing Office Automation and Equipment stocks, the industry is currently trading at 21.03X compared with the S&P 500’s 22.64X and the sector’s 27.46X.

Over the past five years, the industry has traded as high as 24.13X and as low as 16.10X, recording a median of 19.18X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

 

3 Stocks to Watch Out For

Canon: This Zacks Rank #1 (Strong Buy) is benefiting from resumption of business negotiations and equipment installations in its office segment. You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, faster-than-expected market recovery in demand is expected to drive Imaging System segment prospects. Further, strong demand for medical equipment is anticipated to boost Medical System’s top-line growth.

Tokyo, Japan-based Canon has lost 35.6% in the past year. The Zacks Consensus Estimate for the company’s current-year earnings has moved 2.2% down to 44 cents per share over the past 30 days.

Price and Consensus: CAJ

 

Pitney Bowes: This Zacks Rank #3 is gaining from growth in Global Ecommerce segment revenues amid coronavirus crisis-led e-commerce boom. Solid momentum in Domestic Parcel Delivery services and increasing volumes in Digital Delivery, Mail Flats and Bound Printed Matter are expected to boost the top line going ahead. Further, improvement in business services, driven by increased usage of shipping offerings, bodes well for the company’s prospects.

This Stamford, CT-based stock has gained 18% in the past year. The consensus mark for its current-year earnings has stayed flat at 23 cents per share over the past 30 days.

Price and Consensus: PBI

 

Seiko Epson: Suwa, Japan-based Seiko also has a Zacks Rank #3. The company is expected to benefit from growing demand for high-capacity ink tank printers, ink cartridge printers, projectors and robots. Moreover, the company expects supply shortage situation to normalize in the fourth quarter.

The stock has lost 0.4% in the past year. The Zacks Consensus Estimate for the company’s current-year earnings has remained stable at 70 cents per share over the past 30 days.

Price and Consensus: SEKEY

 

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
 
Seiko Epson Corp. (SEKEY) : Free Stock Analysis Report
 
Pitney Bowes Inc. (PBI) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
 
Canon, Inc. (CAJ) : Free Stock Analysis Report
 
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