3 Testing Equipment Stocks With Bright Prospects to Watch
The Zacks Electronics – Testing Equipment industry has been benefiting from 5G-related growth opportunities, strengthening automation drive and the Industry 4.0 momentum for a while. A strong recovery in the automotive sector, the growing proliferation of self-driving vehicles and solid prospects of the Advanced Driver Assistance System (ADAS) are a tailwind to the industry players. The increasing adoption of software-enabled testing instruments and devices remains another positive. Industry participants like Agilent Technologies A, AMETEK AME and Fortive FTV are well-poised to benefit from the aforesaid factors.
However, widening supply-chain challenges, end-market volatility, inflationary pressures and growing geo-political tensions remain a concern for the underlined industry.
Industry Description
The Zacks Electronics – Testing Equipment industry comprises companies offering advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end markets this particular industry serves are consumer, automobile, industrial, aerospace & defense, healthcare, semiconductors and communications. The industry players are continuously making technological advancements to gain traction from the manufacturers of semiconductors, vehicles, machinery, smartphones and medical devices, who are constantly increasing their spending on electronic components.
3 Trends Shaping the Future of Electronics - Testing Equipment Industry
5G Prospects Are Key Catalysts: The growing deployment of 5G holds near-term promises for the industry players. Another major positive is an uptick in demand for the 5G test solutions, which are required for 5G deployment. The current coronavirus-triggered work-from-home and learn-from-home waves, steadily bolstering demand for high-speed Internet services globally, bode well for the electronic companies that are enhancing their 5G efforts. The increasing number of high-speed data centers worldwide is another tailwind. Given this upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by strong efforts to solidify the 5G strength.
Solid Adoption of Motion Control & Test Systems a Positive: The rising utilization of precision motion-control solutions and automatic test systems in motion-control devices and testing products, particularly in the aerospace, automation, medical and military markets, is a boon. Commercial motor vehicles will likely continue buoying demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings.
Pandemic-Led Disruptions a Headwind: The industry players are reeling under the impact of the coronavirus pandemic-induced macroeconomic woes. The supply-chain challenges due to the ongoing pandemic severely impacted these companies. Production delays remain a major concern too. Moreover, the COVID-led supply crisis’s panoptic impact is wreaking havoc on new bookings of the industry players. In addition, the pandemic-led labor shortages are continuously impacting the production capacity of electronic companies. The companies are struggling to meet the rising demand due to the reopening of economies, thanks to worker absenteeism and short-term shutdowns.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #106, which places it in the top 42% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks worth considering for your portfolio, let’s look at the industry’s recent stock-market performance and the valuation picture.
Industry Outperforms S&P 500 & Sector
The Zacks Electronics – Testing Equipment Industry has outperformed the Zacks S&P 500 composite and surpassed the broader Zacks Computer and Technology sector over the past year.
The companies in the industry have collectively gained 9.6% compared with the S&P 500 and the broader sector’s decline of 6.8% and 14.3%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio (P/E), a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 26.14X, higher than the S&P 500’s 18.71X and the sector’s 22.91X.
Over the past five years, the industry has traded as high as 31.87X and as low as 18.87X, with a median of 23.78X as the chart below shows.
Price/Earnings Ratio (F12M)
3 Testing Equipment Stocks to Keep a Close Eye on
Agilent Technologies: This Palo Alto, CA-based entity is gaining from solid momentum across both small and large molecule applications, which is strengthening its presence in the pharmaceutical market. Strength in Cell Analysis, Liquid Chromatography and Mass Spectrometry platforms remains a tailwind.
The Zacks Rank #2 (Buy) player, an original equipment manufacturer of a broad-based portfolio of test and measurement products serving multiple end markets, is experiencing strong momentum across chemical and energy, food and environmental and forensics markets. A’s solid execution of its cross-lab strategy and a consistent focus on aligning investments with more attractive growth avenues and innovative high-margin product launches are a positive. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Agilent have gained 12.3% in the past year. The Zacks Consensus Estimate for fiscal 2023 earnings has been stable at $5.64 per share over the past 30 days.
Price and Consensus: A
AMETEK: This Berwyn, PA-based player is gaining on solid contributions from the Magnetrol International and Crank Software acquisitions, which are driving growth in its Electronic Instruments segment. Benefits from the Pacific Design Technologies buyout are aiding the Electromechanical segment. Further, the rising demand for precision motion control solutions remains a major tailwind.
AME, a manufacturer of electronic appliances and electromechanical devices, remains optimistic about its AMETEK Growth Model. This Zacks #2 Ranked player’s proper execution of its four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, are expected to aid its finances in the near term.
The stock has gained 12.7% in the past year. The Zacks Consensus Estimate for AME’s 2023 earnings has been revised 0.7% upward over the past 30 days to $5.89 per share.
Price and Consensus: AME
Fortive: This Everett, WA-based entity is benefiting from the strong demand trends for software and hardware offerings and their increased orders. A solid momentum across the Fortive Business System tools remains a key catalyst. Another positive is strengthening momentum across Intelligent Operating Solutions, Precision Technologies and Advanced Healthcare Solutions.
The Zacks Rank #3 (Hold) player, a provider of industrial technology and professional instrumentation solutions, has been gaining from its strategic acquisitions for a while. FTV’s ServiceChannel takeover is helping it penetrate the facility and asset lifecycle market rapidly. Also, the buyout of Provation is boosting Fortive’s healthcare segment.
The stock has gained 7.7% in the past year. The Zacks Consensus Estimate for Fortive’s 2023 earnings has been stable at $3.35 per share over the past 30 days.
Price and Consensus: FTV
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Agilent Technologies, Inc. (A) : Free Stock Analysis Report
AMETEK, Inc. (AME) : Free Stock Analysis Report
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