The Zacks Instruments - Scientific industry comprises companies offering scientific instruments, analytical tools, diagnostic solutions, precision instruments & services, and test & sensor solutions.
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 space.
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 the highly regulated end-markets like life sciences and pharma.
Here are the three major themes in the industry:
- The industry is benefiting from strong end-market demand, particularly from life science, pharmaceutical and academic markets. Increasing demand for generic drugs and biosimilars is driving growth for the 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 present significant growth opportunity 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 $2-billion increase in the National Institute of Health (NIH) budget for fiscal 2019 also bodes well for this industry. Though most unlikely, the 12% cut in NIH budget for fiscal year 2020 proposed by President Donald Trump is a concern.
- 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. Further, an anticipated near-term solution to the trade war between the United States and China bodes 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 #57, which places it at the top 22% 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 Sep 30, 2018, the industry’s earnings estimates for the current year have increased 0.2%.
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 on Shareholder Returns
The Zacks Instruments – Scientific industry has outperformed the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry has returned 20% over this period compared to the S&P 500’s rise of 7% and broader sector’s rally of 6.4%.
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 24.48X compared with the S&P 500’s 17.2X and Zacks Computer and Technology sector’s 19.67X.
Over the last five years, the industry has traded as high as 25.85X, as low as 17.33X and at the median of 21.05X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Solid prospects in emerging markets, increasing spending on health care driven by an aging demography and continued innovation in the pharma and life sciences end-market are key catalysts for this industry.
Currently, none of the stocks in the Zacks Instruments – Scientific industry flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, we are presenting a stock with a Zacks Rank #2 (Buy) that is well-positioned to grow. Moreover, there are a couple of stocks that investors may currently hold on to.
Mettler-Toledo International (MTD): Headquartered in Polaris Parkway, Columbus, the weighing instruments provider has a Zacks Rank #2. Its shares have returned 25.9% in the past year. Moreover, the Zacks Consensus Estimate for the company’s earnings increased by a penny to $22.66 for the current year over the last 30 days.
Price and Consensus: MTD
Bruker Corporation (BRKR): Billerica, MA-based Bruker carries a Zacks Rank #3 (Hold). The stock has returned 27.6% in the past year. The Zacks Consensus Estimate for the company’s current-year earnings has remained steady at $1.57 over the last 30 days.
Price and Consensus: BRKR
Waters Corporation (WAT): Milford, MA-based Waters also carries a Zacks Rank #3. The consensus estimate for the company’s earnings has remained steady at $9.35 for the current year over the last 30 days.
Price and Consensus: WAT
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