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3 Electronics Stocks to Watch From a Challenging Industry
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The Zacks Electronics - Manufacturing Machinery industry is benefiting from increased capital spending on high-performance computing, artificial intelligence, advanced packaging and memory by semiconductor manufacturers. The rising need for data centers, notebooks (due to the coronavirus-induced remote working and learning) and gaming (due to the pandemic-induced demand) are driving memory demand. Kulicke and Soffa Industries (KLIC - Free Report) , Axcelis Technologies (ACLS - Free Report) and Veeco Instruments (VECO - Free Report) are gaining from the above-mentioned trends. These companies provide solutions to semiconductor manufacturers and OEMs. Although weak smartphone demand has been concerning, strength in cloud & data center, healthcare solutions, and gaming has been a key catalyst.
Industry Description
The Zacks Electronics - Manufacturing Machinery industry comprises companies that provide a range of solutions to address the needs of wafer processing facilities as well as device packaging and test facilities of semiconductor manufacturing processes. The solutions offered by the industry participants include thin-film processing systems, photonics, process control tools (that perform macro defect inspections and metrology), metal organic chemical vapor deposition, advanced packaging lithography, wet etch and clean, laser annealing, and 3D wafer inspection systems. A few industry participants also offer micro-contamination control products and advanced material-handling solutions. Notably, contamination-free transportation, storage and delivery of materials have gained immense significance recently.
3 Trends Shaping the Future of the Electronics Industry
Miniaturization Enhances Prospects: Industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. The demand for advanced packaging, which enables the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions and the rapid adoption of new device architecture like FinFET transistors and 3D-NAND, along with the increasing utilization of new manufacturing materials to increase transistor and bit density, are driving the demand for solutions provided by the industry players. Moreover, the emergence of techniques like wafer level packaging is driving the need for a high-purity manufacturing environment free of contaminants. The rising demand for clean processing, as well as wafer carrier cleaning and conditioning tools, is a key catalyst for the industry participants.
Complex Process Driving Demand: The requirement for faster, more powerful and energy-efficient semiconductors is expected to increase rapidly on the robust adoption of cloud computing, IoT and AI. Semiconductor manufacturers like Intel, Samsung and Taiwan Semiconductors are primarily looking to maximize manufacturing yields at lower costs. This is making semiconductor manufacturing processes more complex and driving the demand for solutions offered by the industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. Further, the increasing deployment of 5G and the growing demand for edge computing are the key catalysts.
Strong NAND, DRAM & SSD Demand: The improving demand for NAND and DRAM is a positive for the industry participants. Strong SSD demand, driven by data center and cloud spending, is another key catalyst. DRAM is expected to benefit from strong demand in the data center, enterprise and cloud segments. Strong demand for chip and higher spending on semiconductor capital equipment is aiding the industry participants.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Electronics - Manufacturing Machinery industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #168, which places it in the bottom 33% 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 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 position 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. Since Oct 31, 2021, the industry’s earnings estimate for the current year has decreased 13.2%.
Despite the gloomy industry outlook, a few stocks are worth watching due to their strong prospects. Before we present the 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 Lags Sector and S&P 500
The Zacks Electronics - Manufacturing Machinery industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 43.5% over this period compared with the S&P 500’s fall of 25.3% and the broader sector’s dip of 37.8%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Electronics - Manufacturing Machinery companies, we see that the industry is currently trading at 7.60X compared with the S&P 500’s 10.97X. It is below the sector’s trailing 12-month EV/EBITDA of 8.01X.
Over the last five years, the industry has traded as high as 17.78X, as low as 4.98X and at the median of 11.94X, as the chart below shows.
EV/EBITDA Ratio (TTM)
3 Electronics Stocks to Watch Right Now
Veeco: The New York-based company’s ion beam, laser annealing, lithography, MOCVD and single wafer etch and clean technologies are integral in the fabrication and packaging of advanced semiconductor devices.
Veeco is riding on an expanding clientele, driven by its innovative product offerings, enhanced service capabilities and increased manufacturing capacity.
Axcelis: The Zacks Rank #3 (Hold) company is primarily a producer of ion implantation equipment used to fabricate semiconductor chips in the United States, Europe and Asia.
Headquartered in Beverly, MA, Axcelis is riding on solid capital spending in the implant-intensive mature process technology markets. The strong adoption of the Purion product family has been a catalyst.
The Zacks Consensus Estimate for Axcelis’ 2022 earnings has been unchanged at $4.67 per share over the past 30 days.
Price and Consensus: ACLS
Kulicke and Soffa: Singapore-based Kulicke and Soffa designs, manufactures and sells capital equipment and tools used to assemble semiconductor devices, including integrated circuits, high and low-powered discrete devices, light-emitting diodes, and power modules. Additionally, it offers tools used to assemble components onto electronic circuit boards.
Kulicke and Soffa is benefiting from the strong adoption of its solutions in the automotive, semiconductor and the battery assembly space due to the ongoing transition to the electric vehicle and autonomous driving.
Another Zacks Rank #3 company, Kulicke and Soffa’s expanding portfolio within the semiconductor space is a key catalyst.
The consensus mark for Kulicke and Soffa’s current-year earnings has been unchanged at $7.17 per share over the past 30 days.
Price and Consensus: KLIC
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3 Electronics Stocks to Watch From a Challenging Industry
The Zacks Electronics - Manufacturing Machinery industry is benefiting from increased capital spending on high-performance computing, artificial intelligence, advanced packaging and memory by semiconductor manufacturers. The rising need for data centers, notebooks (due to the coronavirus-induced remote working and learning) and gaming (due to the pandemic-induced demand) are driving memory demand. Kulicke and Soffa Industries (KLIC - Free Report) , Axcelis Technologies (ACLS - Free Report) and Veeco Instruments (VECO - Free Report) are gaining from the above-mentioned trends. These companies provide solutions to semiconductor manufacturers and OEMs. Although weak smartphone demand has been concerning, strength in cloud & data center, healthcare solutions, and gaming has been a key catalyst.
Industry Description
The Zacks Electronics - Manufacturing Machinery industry comprises companies that provide a range of solutions to address the needs of wafer processing facilities as well as device packaging and test facilities of semiconductor manufacturing processes. The solutions offered by the industry participants include thin-film processing systems, photonics, process control tools (that perform macro defect inspections and metrology), metal organic chemical vapor deposition, advanced packaging lithography, wet etch and clean, laser annealing, and 3D wafer inspection systems. A few industry participants also offer micro-contamination control products and advanced material-handling solutions. Notably, contamination-free transportation, storage and delivery of materials have gained immense significance recently.
3 Trends Shaping the Future of the Electronics Industry
Miniaturization Enhances Prospects: Industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. The demand for advanced packaging, which enables the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions and the rapid adoption of new device architecture like FinFET transistors and 3D-NAND, along with the increasing utilization of new manufacturing materials to increase transistor and bit density, are driving the demand for solutions provided by the industry players. Moreover, the emergence of techniques like wafer level packaging is driving the need for a high-purity manufacturing environment free of contaminants. The rising demand for clean processing, as well as wafer carrier cleaning and conditioning tools, is a key catalyst for the industry participants.
Complex Process Driving Demand: The requirement for faster, more powerful and energy-efficient semiconductors is expected to increase rapidly on the robust adoption of cloud computing, IoT and AI. Semiconductor manufacturers like Intel, Samsung and Taiwan Semiconductors are primarily looking to maximize manufacturing yields at lower costs. This is making semiconductor manufacturing processes more complex and driving the demand for solutions offered by the industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. Further, the increasing deployment of 5G and the growing demand for edge computing are the key catalysts.
Strong NAND, DRAM & SSD Demand: The improving demand for NAND and DRAM is a positive for the industry participants. Strong SSD demand, driven by data center and cloud spending, is another key catalyst. DRAM is expected to benefit from strong demand in the data center, enterprise and cloud segments. Strong demand for chip and higher spending on semiconductor capital equipment is aiding the industry participants.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Electronics - Manufacturing Machinery industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #168, which places it in the bottom 33% 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 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 position 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. Since Oct 31, 2021, the industry’s earnings estimate for the current year has decreased 13.2%.
Despite the gloomy industry outlook, a few stocks are worth watching due to their strong prospects. Before we present the 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 Lags Sector and S&P 500
The Zacks Electronics - Manufacturing Machinery industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 43.5% over this period compared with the S&P 500’s fall of 25.3% and the broader sector’s dip of 37.8%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Electronics - Manufacturing Machinery companies, we see that the industry is currently trading at 7.60X compared with the S&P 500’s 10.97X. It is below the sector’s trailing 12-month EV/EBITDA of 8.01X.
Over the last five years, the industry has traded as high as 17.78X, as low as 4.98X and at the median of 11.94X, as the chart below shows.
EV/EBITDA Ratio (TTM)
3 Electronics Stocks to Watch Right Now
Veeco: The New York-based company’s ion beam, laser annealing, lithography, MOCVD and single wafer etch and clean technologies are integral in the fabrication and packaging of advanced semiconductor devices.
Veeco is riding on an expanding clientele, driven by its innovative product offerings, enhanced service capabilities and increased manufacturing capacity.
The Zacks Consensus Estimate for this Zacks Rank 2 (Buy) company’s 2022 earnings has been unchanged at $1.61 per share in the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: VECO
Axcelis: The Zacks Rank #3 (Hold) company is primarily a producer of ion implantation equipment used to fabricate semiconductor chips in the United States, Europe and Asia.
Headquartered in Beverly, MA, Axcelis is riding on solid capital spending in the implant-intensive mature process technology markets. The strong adoption of the Purion product family has been a catalyst.
The Zacks Consensus Estimate for Axcelis’ 2022 earnings has been unchanged at $4.67 per share over the past 30 days.
Price and Consensus: ACLS
Kulicke and Soffa: Singapore-based Kulicke and Soffa designs, manufactures and sells capital equipment and tools used to assemble semiconductor devices, including integrated circuits, high and low-powered discrete devices, light-emitting diodes, and power modules. Additionally, it offers tools used to assemble components onto electronic circuit boards.
Kulicke and Soffa is benefiting from the strong adoption of its solutions in the automotive, semiconductor and the battery assembly space due to the ongoing transition to the electric vehicle and autonomous driving.
Another Zacks Rank #3 company, Kulicke and Soffa’s expanding portfolio within the semiconductor space is a key catalyst.
The consensus mark for Kulicke and Soffa’s current-year earnings has been unchanged at $7.17 per share over the past 30 days.
Price and Consensus: KLIC