3 Top Testing Equipment Stocks With Bright Prospects to Buy
The Zacks Electronics – Testing Equipment industry has been benefiting from the increasing demand for software-enabled testing instruments and devices. Strong recovery in the automotive sector and the growing proliferation of self-driving vehicles and solid prospects of Advanced Driver Assistance System (ADAS) are a tailwind to the industry players. Additionally, 5G-related growth opportunities, strengthening automation drive and the Industry 4.0 momentum are positives. Industry participants like AMETEK AME, Fortive FTV and Itron ITRI are well-poised to benefit from the aforesaid factors.
However, widening supply-chain challenges, end-market volatility, inflationary pressures and growing geo-political tensions are 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. 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 the demand uptick for 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 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 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 pandemic-led supply-chain challenges have been affecting these companies for a while. Production delays are a major concern too. The panoptic impact of the COVID-led supply crisis 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, owing 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 #85, which places it in the top 34% 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this industry’s earnings growth potential. Since Apr 30, 2023, the industry’s earnings estimates for the current year have moved up 0.8%.
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, Lags Sector
The Zacks Electronics – Testing Equipment Industry has outperformed the Zacks S&P 500 composite, but underperformed the broader Zacks Computer and Technology sector in the past year.
The companies in the industry have collectively gained 22.1% compared with the S&P 500 and the broader sector’s rally of 14.5% and 22.8%, 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 24.86X, higher than the S&P 500’s 19.99X and lower than the sector’s 25.26X.
In the past five years, the industry has traded as high as 31.87X and as low as 18.87X, with a median of 23.89X as the chart below shows.
Price/Earnings Ratio (F12M)
3 Testing Equipment Stocks to Buy
Itron: This Liberty Lake, WA-based entity is gaining from increasing demand for electric vehicles and distributed energy resource management. Further, strength in software license and managed services is driving the top line.
The Zacks Rank #1 (Strong Buy) player, one of the leading global suppliers of a wide range of standard, advanced, and smart meters and meter communication systems, including networks and communication modules, software, devices, sensors, data analytics and services, is experiencing the ramp up of new and existing deployments. Further, its growing efforts toward expanding product lines that aid the utilities in meeting decarbonization and sustainability goals are positives.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Itron have gained 39% in the past year. The Zacks Consensus Estimate for fiscal 2023 earnings has been revised 2.7% upward in the past 30 days to $1.51 per share.
Price and Consensus: ITRI
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. The rising demand for precision motion control solutions is a major tailwind.
AME, a manufacturer of electronic appliances and electromechanical devices, is optimistic about its AMETEK Growth Model. This Zacks #2 (Buy) 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 37.3% in the past year. The Zacks Consensus Estimate for AME’s 2023 earnings has been revised 0.2% upward in the past 30 days to $6.12 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 are a key catalyst. Another positive is strengthening momentum across Intelligent Operating Solutions, Precision Technologies and Advanced Healthcare Solutions.
The Zacks Rank #2 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.
The stock has gained 27.9% in the past year. The Zacks Consensus Estimate for Fortive’s 2023 earnings has been stable at $3.35 per share in the past 30 days.
Price and Consensus: FTV
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AMETEK, Inc. (AME) : Free Stock Analysis Report
Itron, Inc. (ITRI) : Free Stock Analysis Report
Fortive Corporation (FTV) : Free Stock Analysis Report
