For Immediate Release
Chicago, IL – March 29, 2023 – Today, Zacks Equity Research discusses Stratasys SSYS, Vuzix Corp. VUZI and TransAct Technologies TACT.
Industry: Computer - Peripheral Equipment
The Zacks Computer-Peripheral Equipment industry has been reeling under the effects of the pandemic and geopolitical issues triggered by the macroeconomic downturn. These have induced sluggishness in IT spending, impacting the demand for computer peripherals. The industry is also showing signs of struggle as demand for remote working and online learning-related computer peripherals is declining with the reopening of economies. Also, as people stay less at home, the time spent playing video games is expected to drop, thereby hurting the demand for gaming accessories.
Nevertheless, Stratasys, Vuzix Corp. and TransAct Technologies are a few industry participants well poised to benefit from the growing demand for professional gaming accessories, touchscreen devices, smart glasses and RFID (Radio Frequency Identification) solutions. Moreover, the solid demand for 3D-printed health equipment like face shields, nasal swabs and ventilator parts has been a tailwind.
The Zacks Computer-Peripheral Equipment industry comprises companies offering computer input, output and storage devices. These include keyboards, mouse, LCD panels, smart glass, analog to digital imaging solutions, touch sensors, 3D printers & additive manufacturing, and transaction-based printer products, among others.
Moreover, video gaming accessories, including gaming mouse, wired gaming headsets, in-ear gaming headphones and controllers for Xbox One and Playstation, are offered by these companies. Notably, the highly competitive nature of the industry is encouraging participants to come up with innovative and relevant products to meet the current demand trend. This is strengthening their product portfolios.
4 Trends Shaping the Future of the Computer-Peripheral Equipment Industry
Shift in Consumer Preference a Key Catalyst: The gradual shift in consumer preference from mobile gaming to a more professional gaming experience is a major growth driver. The launch of advanced gaming devices and the rising popularity of e-sports leagues are likely to boost prospects. Markedly, e-sports will also likely continue aiding the total addressable market in the gaming peripherals industry.
In addition, the 3D printing market presents a favorable long-term investment opportunity, as a large number of engineers, designers, architects and entrepreneurs are resorting to 3D solutions for primary designing and product modeling. Also, the coronavirus outbreak is resulting in massive demand for gaming equipment and 3D-printed medical equipment, which is a major driving force for this industry during these trying times.
Expanding Global Footprint: The expansion of the total addressable market bodes well for the industry participants. Deepening penetration into price-sensitive regions like the Asia Pacific and the Middle East & Africa through low-cost quality products boosts growth prospects.
Macroeconomic Headwinds Might Hurt IT Spending: Enterprises may postpone their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues. In January 2023, Gartner slashed its worldwide IT spending growth forecast by half to 2.4% from the earlier projection of 5.1% increase. Considering the recessionary situation around the world, we do not expect any strong rebound in IT spending at least in the first half of 2023. This does not bode well for the Computer-Peripheral Equipment market’s prospects in the near term.
Elevated Operating Expenses to Hurt Profitability: To survive in the highly competitive computer peripheral market, each player is aggressively investing in research and development to enhance their product portfolio and broaden their capabilities. Moreover, companies are looking to enhance their sales and marketing capabilities, particularly by increasing their sales force. Therefore, elevated operating expenses to capture more market share are likely to dent margins in the near term.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Computer-Peripheral Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #200, which places it in the bottom 20% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates dim 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 bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s estimate for 2023 has moved down to a loss of 14 cents from earnings of 92 cents expected a year ago.
Despite the gloomy industry outlook, a few stocks are worth buying in the market. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 and Sector
The Zacks Computer-Peripheral Equipment industry has underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector in the trailing 12 months.
The industry has lost 31% during this period. The S&P 500 and the broader sector have declined 14.2% and 16.4%, respectively, over the same time frame.
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly-used multiple for valuing computer peripheral stocks, we see that the industry is currently trading at 0.55X compared with the S&P 500’s 3.50X and the Zacks Computer and Technology sector’s 3.72X.
Over the last five years, the industry has traded as high as 1.22X, as low as 0.33X and at the median of 0.57X.
3 Stocks to Buy
Stratasys: This Eden Prairie, MN-based company is benefiting from an increase in demand for 3D-printed medical equipment. Notably, the adoption of PolyJet and FDM printers has been encouraging. Markedly, Stratasys’ machines facilitate prototyping within a few hours, reducing development time and upfront costs. Also, the company’s spool-based system compares favorably with UV polymer systems. For these reasons, we think the company maintains a leading position in rapid prototyping (“RP”) machines. Apart from these, the company’s RedEye RPM is the world's largest RP and part-building service.
This 3D printing company has made strategic partnerships with the likes of Schneider Electric, Boeing, Ford Motor, Siemens, Boom Supersonic and United Launch Alliance in recent times. These collaborations are aimed at introducing advanced 3D printing technologies in the aerospace and automotive industries. Additionally, this Zacks Rank #2 (Buy) company’s cost-control initiatives are anticipated to reflect positively on the bottom line. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus mark for 2023 earnings has been revised downward by 4 cents in the past 30 days to 15 cents per share. The stock has depreciated 43.9% in a year’s time.
Vuzix: It is a leading supplier of smart glasses and augmented reality technologies and products for the consumer and enterprise markets. This Zacks Rank #2 company's products include personal displays and wearable computing devices that offer users a portable high-quality viewing experience, and solutions for mobility, wearable displays and augmented reality.
Vuzix is benefiting from continued strong demand for its smart glasses, particularly the M400 series, from enterprise customers and healthcare providers to overcome operational challenges caused by COVID-19 across a variety of market verticals. Furthermore, the ISO class 2 certification received for its M400 glasses would allow the device to be used in clean room environments, thereby enhancing its adoption across electronics, pharmaceuticals, medical devices, optics, solar and aerospace/defense end-markets.
The Zacks Consensus Estimate for 2023 is pegged at a loss per share of 60 cents, which is a penny lower than a loss of 61 cents projected 30 days ago. Vuzix’s shares have declined 39.6% in the past year.
TransAct Technologies: The company designs, develops, manufactures and markets transaction-based printers and related products under the ITHACA and MAGNETEC and TRANSACT.COM brand names. This Zacks Rank #2 company focuses on five vertical markets: point-of-sale, gaming and lottery, financial services, kiosk and Internet.
TransAct Technologies is benefiting from growing demand for its products and services amid accelerated digital transformation and business automation across organizations. The company's printers are trusted worldwide to provide crisp, clean transaction records from receipts, tickets and coupons, register journal and other documents.
The Zacks Consensus Estimate for 2023 earnings has been revised upward to earnings of 13 per share from a loss of 48 cents projected 30 days ago. Shares of the company have plunged 15.7% over the past year.
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