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4 Testing Equipment Stocks to Escape a Challenging Industry

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·7 min read
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Supply-chain disruptions and end-market dynamics across the world due to the coronavirus pandemic impacted the Zacks Electronics – Testing Equipment industry adversely. Depressed major sectors like the automotive, industrial and linear markets are weighing heavily on the industry’s prospects.

Nevertheless, Agilent Technologies A, AMETEK AME, Fortive FTV and Cognex CGNX are well-poised to benefit from the 5G-related growth opportunities, strengthening automation drive, and the ongoing learn-from-home and work-from-home trends. Further, the emergence of software-enabled testing instruments and devices remains the silver lining for the industry participants.



Industry Description

The Zacks Electronics – Testing Equipment industry comprises companies that offer advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end-markets served by this particular industry are consumer, automobile, industrial, aerospace & defense, healthcare, semiconductors and communications to name a few. 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

Pandemic-Led Disruptions a Headwind: The industry players are reeling under the impact of the coronavirus (COVID-19)-induced macroeconomic woes. The supply-chain challenges due to the ongoing pandemic severely impacted these companies. Further, production delays remain a major concern. Moreover, the panoptic impact of the COVID-19-led crisis has been wreaking havoc on new bookings of the industry players for a while.

5G Prospects Are Key Catalysts: The growing deployment of 5G holds near-term promises for the industry players. An uptick in demand for the 5G test solutions, which are required for 5G deployment, is another major positive. The current coronavirus-triggered work-from-home and learn-from-home waves, which are steadily bolstering the demand for high-speed Internet services globally, bode well for the electronic companies that are enhancing their 5G efforts. The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by strong efforts made 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. Further, the 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.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #173, which places it in the bottom 32% 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 weak 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.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and its valuation picture.

Industry Lags S&P 500 & Sector

The Zacks Electronics – Testing Equipment Industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.

The companies in the industry have collectively lost 8.5% against the S&P 500’s gain of 8.6%. The same is also compared with the Computer and Technology sector’s loss of 7.5%.

One-Year Price Performance



Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 24.2X, higher than the S&P 500’s 19.51X and the sector’s 22.59X.

Over the past five years, the industry has traded as high as 31.87X and as low as 18.87X, with a median of 24.28X as the chart below shows.

Price/Earnings Ratio (F12M)

4 Testing Equipment Stocks to Keep a Close Eye on

Agilent: This Palo Alto, CA-based player is gaining from a 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 spaces remains a tailwind.

This presently Zacks Rank #3 (Hold) stock, an original equipment manufacturer of a broad-based portfolio of test and measurement products serving multiple end markets, is experiencing synergies drawn from the acquisition of BioTek Instruments. A’s solid execution of a cross-lab strategy along with its consistent focus on aligning investments with more attractive growth avenues and innovative high-margin product launches remains positives. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Agilent have lost 1.3% in the past year. The Zacks Consensus Estimate for fiscal 2022 earnings has been stable at $4.86 per share over the past 30 days.

Price and Consensus: A

AMETEK: This Berwyn, PA-based company 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, rising demand for precision motion control solutions remains a major tailwind.

The company, which is the manufacturer of electronic appliances and electromechanical devices, remains optimistic about its strong momentum across the defense and medical markets. This presently Zacks Rank #3 company’s proper execution of its four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, is expected to continue aiding its finances in the near term.

The stock has lost 1.5% in the past year. The Zacks Consensus Estimate for AME’s 2022 earnings has been stable at $5.40 per share over the past 30 days.

Price and Consensus: AME

Fortive: The Everett, WA-based company is benefiting from the strong demand trends for software offerings and their increased orders. Further, a solid momentum across the Fortive Business System tools remains a major tailwind. Additionally, strengthening momentum across Intelligent Operating Solutions, Precision Technologies and Advanced Healthcare Solutions is another positive.

This currently Zacks Rank #3 entity, a provider of industrial technology and professional instrumentation solutions, has been gaining from its strategic acquisitions for a while. FTV’s ServiceChannel acquisition is helping it penetrate the facility and asset lifecycle market. Also, the buyout of Provation is expected to boost Fortive’s healthcare segment.

The stock has lost 19.3% in the past year. The Zacks Consensus Estimate for Fortive’s 2022 earnings has been revised 0.3% upward over the past 30 days to $3.09 per share.

Price and Consensus: FTV

Cognex: The Natick, MA-based entity is benefiting from an uptick in demand for its products from large customers. Further, Cognex machine vision’s growing momentum owing to the ongoing online learning and work-from-home trends, which in turn, is spurring the need for tablets, laptops and wearable devices, remains a major positive.

This presently Zacks Rank #3 player, a developer and manufacturer of machine vision systems, remains well-positioned to reap benefits from the factory automation space.

Cognex has lost 14.8% in the past year. The Zacks Consensus Estimate for 2022 earnings has been stable at $1.74 per share over the past 30 days.

Price and Consensus: CGNX


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Agilent Technologies, Inc. (A) : Free Stock Analysis Report

AMETEK, Inc. (AME) : Free Stock Analysis Report

Cognex Corporation (CGNX) : Free Stock Analysis Report

Fortive Corporation (FTV) : Free Stock Analysis Report

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