The Zacks Instruments - Scientific industry comprises companies offering scientific instruments, analytical tools, diagnostic solutions, precision instruments & services, and test & sensor solutions. Major industry participants are Mettler-Toledo International (MTD), PerkinElmer (PKI) and Waters Corporation (WAT).
The primary end-markets served by the industry participants are life science research in academia, medical schools and government, pharmaceuticals and biotechnology, microbiology and diagnostics, nanotechnology, and materials science research. A few companies also serve the food and nutritional safety, biochemical, and industrial spaces.
Most of the industry participants are under stringent regulatory scrutiny worldwide. They have to adhere to the U.S. Food and Drug Administration (FDA) norms as well as rules set by other global regulatory bodies for serving highly regulated end-markets like life sciences and pharma.
Here are the industry’s three major themes:
The industry is benefiting from strong end-market demand, particularly from the life science, pharmaceutical and academic markets. Increasing demand for generic drugs and biosimilars is driving growth for scientific tool and apparatus providers. Additionally, pharma companies are focusing on rapidly growing areas like proteomics and phenomics, biopharma and applied, microbiology and diagnostics, and neuroscience and cell microscopy, which creates significant demand for the instruments provided by industry participants.
Socioeconomic factors like an aging demography and increasing environmental regulations are driving demand for scientific measurement solutions. Moreover, robust worldwide healthcare spending is a major growth driver. The 6% increase in the National Institute of Health (NIH) budget for fiscal 2020 also bodes well for this industry. NIH will now receive $41.46 billion including increases for each of the agency's institutes and centers.
Further, the industry is gaining from increasing exposure to developing economies like China and India. Prospects in China are huge as regulators are attempting to raise the country’s biopharma industry to global standards. Moreover, efforts to improve the drug development process and production quality in the country are noteworthy. These factors are resulting in strong demand for instruments. However, any undesirable turn in the trade spat between the United States and China will not bode well for some of the industry participants.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Instruments - Scientific industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #103, which places it at the top 41% 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 solid 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since Jul 31, the industry’s 2020 earnings estimates have increased 0.4%.
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 valuation picture.
Industry Outperformed S&P, Lags Industry
The Zacks Instruments – Scientific industry has underperformed the broader Zacks Computer and Technology sector but beat the S&P 500 composite over the past year.
The industry has returned 28.9% over this period compared to the S&P 500’s rise of 27.9% and the broader sector’s rally of 33.8%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing scientific instrument stocks, we see that the industry is currently trading at 24.32X compared with the S&P 500’s 18.75X and the Zacks Computer and Technology sector’s 22.14X.
Over the last five years, the industry has traded as high as 26.74X, as low as 19.33X and at the median of 22.14X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Consider
Solid emerging market prospects, increasing spending on health care driven by an aging demography, and continued innovation in the pharma and life sciences end-market are the key catalysts for this industry.
Holliston, MA-based Harvard Bioscience (HBIO) is a Zacks Rank #2 (Buy) stock well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This scientific instrument provider has returned 28.9% in the past year. Moreover, the Zacks Consensus Estimate for 2020 earnings stayed at 23 cents over the past 30 days.
Price and Consensus: HBIO
We are also presenting a couple of stocks with a Zacks Rank #3 (Hold) that investors may currently retain.
Mettler-Toledo International: Headquartered in Polaris Parkway, Columbus, the weighing instruments provider has returned 40.2% in the past year. Moreover, the consensus mark for 2020 earnings stayed at $25.02 over the last 30 days.
Price and Consensus: MTD
PerkinElmer: Waltham, MA-based PerkinElmer has gained 23.6% in the past year. The Zacks Consensus Estimate for 2020 earnings stayed put at $4.61 over the last 7 days.
Price and Consensus: PKI
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Waters Corporation (WAT) : Free Stock Analysis Report
PerkinElmer, Inc. (PKI) : Free Stock Analysis Report
Mettler-Toledo International, Inc. (MTD) : Free Stock Analysis Report
Harvard Bioscience, Inc. (HBIO) : Free Stock Analysis Report
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