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However, the common thread between these companies is that most of their hardware is produced in China and South East Asia and they generate significant revenues from these regions.
Hence, the whole industry is suffering due to the ongoing tariff dispute between the United States and China.
The industry has also been negatively impacted by declining demand for copiers and office equipment. Shift toward digitization primarily due to increasing adoption of smartphones and portable devices has been detrimental for the industry’s growth.
Heavy investments in technology to innovate and customize products are dragging down margins. Further, with product life cycles being short, investments in research and development are increasing.
Additionally, increasing labor cost in China and South East Asia is keeping margins under pressure. Moreover, increasing competition from low cost products developed by Chinese manufacturers is forcing industry participants to reduce prices. This is taking a toll on the bottom line.
Industry Lags S&P 500 & Sector
It appears that a tough operating environment coupled with a saturated market has been hurting investor sentiments.
The Zacks Office Automation and Equipment Industry, within the broader Zacks Computer And Technology Sector, has underperformed both the S&P 500 and its own sector over the past year.
While the Zacks S&P 500 Composite and Zacks Computer And Technology Sector have rallied 15.2% and 17.1%, respectively, the stocks in this industry have collectively lost 11.2%.
One-Year Price Performance
Office Automation and Equipment Stocks Trading Cheap
Thanks to the underperformance of the industry over the past year, the Office Automation and Equipment industry’s valuation looks cheap at the moment. One might get a good handle on the industry’s relative valuation by looking at its price-to-earnings ratio (P/E), which essentially shows how much an investor is willing to pay for each unit of earnings.
Notably, a lower P/E ratio is always better.
The industry currently has a forward 12-month P/E ratio of 13.40, which is the lowest level over the past year.
The space also looks inexpensive when compared with the market at large, as the forward 12-month P/E ratio for the S&P 500 is 17.39 and the median level is 17.49.
Price/Earnings F12M
Moreover, a comparison of the group’s P/E ratio with that of its broader sector ensures that the group is trading at a significant discount. The Zacks Computer And Technology Sector’s forward 12-month P/E ratio of 19.92 and the median level of 19.98 for the same period are much higher than the Zacks Office Automation and Equipment Industry’s respective ratios.
Price/Earnings F12M
Underperformance May Continue Due to Dim Earnings Outlook
Escalating labor costs in emerging markets, rising commodity prices and increasing foreign exchange volatility are expected to hurt shareholder returns in the near term.
However, what really matters to investors is whether this group has the potential to perform better than the broader market in the quarters ahead.
One reliable measure that can help investors understand the industry’s prospects for a solid price performance going forward is its earnings outlook. Empirical research shows that earnings outlook for the industry, a reflection of the earnings revisions trend for the constituent companies, has a direct bearing on its stock market performance.
The Price & Consensus chart for the industry shows the market's evolving bottom-up earnings expectations for it and the industry's aggregate stock market performance.
Price and Consensus: – Zacks Office Automation and Equipment Industry
This becomes even clearer by focusing on the aggregate bottom-up EPS revisions trend. The chart below shows the evolution of aggregate consensus expectations for 2018.
Please note that the $2.12 EPS estimate for the industry for 2018 is not the actual bottom-up EPS estimate for every company in the Zacks Office Automation and Equipment industry, but rather an illustrative aggregate number created by our proprietary analytics model. The key factor to keep in mind is not the EPS of the industry for 2018, but how this projection has evolved recently.
As you can see here, the $2.12 EPS estimate for 2018 has remained steady from the end of August.
Current Fiscal Year EPS Estimate Revisions
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term.
The Zacks Office Automation and Equipment currently carries a Zacks Industry Rank #227, which places it at the bottom 11% of 256 Zacks industries. 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.
Now, looking at the past revenue performances, the prospects of the industry also appear to be bleak.
Bottom Line
A slow market growth rate, impact of digitization and looming tensions over a trade war could weigh on the prospects of the Office Automation and Equipment industry. Below are two stocks that carry a bearish Zacks Rank that we would recommend investors to stay away from for the time being.
Konica Minolta Inc. (KNCAY - Free Report) : Tokyo-based Konica Minolta carries a Zacks Rank #5 (Strong Sell). The consensus EPS estimate for the company has moved 10.1% lower for the current year, over the last 60 days.
Price and Consensus: KNCAY
Seiko Epson Corp. (SEKEY - Free Report) : Nagano, Japan-based Seiko carries a Zacks Rank #4 (Sell). The consensus estimate for the company has remained unchanged at 71 cents for the current year over the past 60 days.
Price and Consensus: SEKEY
However, below is a stock that investors can pick to gain exposure in this industry.
Ricoh Co. (RICOY - Free Report) : Tokyo-based Ricoh carries a Zacks Rank #2 (Buy). The consensus estimate for the company has remained unchanged at 64 cents for the current year over the last 60 days.
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6% and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Office Automation and Equipment Stock Outlook: Prospects Dull
The Zacks Office Automation and Equipment Industry comprises companies that are domiciled in the United States and Japan.
However, the common thread between these companies is that most of their hardware is produced in China and South East Asia and they generate significant revenues from these regions.
Hence, the whole industry is suffering due to the ongoing tariff dispute between the United States and China.
The industry has also been negatively impacted by declining demand for copiers and office equipment. Shift toward digitization primarily due to increasing adoption of smartphones and portable devices has been detrimental for the industry’s growth.
Heavy investments in technology to innovate and customize products are dragging down margins. Further, with product life cycles being short, investments in research and development are increasing.
Additionally, increasing labor cost in China and South East Asia is keeping margins under pressure. Moreover, increasing competition from low cost products developed by Chinese manufacturers is forcing industry participants to reduce prices. This is taking a toll on the bottom line.
Industry Lags S&P 500 & Sector
It appears that a tough operating environment coupled with a saturated market has been hurting investor sentiments.
The Zacks Office Automation and Equipment Industry, within the broader Zacks Computer And Technology Sector, has underperformed both the S&P 500 and its own sector over the past year.
While the Zacks S&P 500 Composite and Zacks Computer And Technology Sector have rallied 15.2% and 17.1%, respectively, the stocks in this industry have collectively lost 11.2%.
One-Year Price Performance
Office Automation and Equipment Stocks Trading Cheap
Thanks to the underperformance of the industry over the past year, the Office Automation and Equipment industry’s valuation looks cheap at the moment. One might get a good handle on the industry’s relative valuation by looking at its price-to-earnings ratio (P/E), which essentially shows how much an investor is willing to pay for each unit of earnings.
Notably, a lower P/E ratio is always better.
The industry currently has a forward 12-month P/E ratio of 13.40, which is the lowest level over the past year.
The space also looks inexpensive when compared with the market at large, as the forward 12-month P/E ratio for the S&P 500 is 17.39 and the median level is 17.49.
Price/Earnings F12M
Moreover, a comparison of the group’s P/E ratio with that of its broader sector ensures that the group is trading at a significant discount. The Zacks Computer And Technology Sector’s forward 12-month P/E ratio of 19.92 and the median level of 19.98 for the same period are much higher than the Zacks Office Automation and Equipment Industry’s respective ratios.
Price/Earnings F12M
Underperformance May Continue Due to Dim Earnings Outlook
Escalating labor costs in emerging markets, rising commodity prices and increasing foreign exchange volatility are expected to hurt shareholder returns in the near term.
However, what really matters to investors is whether this group has the potential to perform better than the broader market in the quarters ahead.
One reliable measure that can help investors understand the industry’s prospects for a solid price performance going forward is its earnings outlook. Empirical research shows that earnings outlook for the industry, a reflection of the earnings revisions trend for the constituent companies, has a direct bearing on its stock market performance.
The Price & Consensus chart for the industry shows the market's evolving bottom-up earnings expectations for it and the industry's aggregate stock market performance.
Price and Consensus: – Zacks Office Automation and Equipment Industry
This becomes even clearer by focusing on the aggregate bottom-up EPS revisions trend. The chart below shows the evolution of aggregate consensus expectations for 2018.
Please note that the $2.12 EPS estimate for the industry for 2018 is not the actual bottom-up EPS estimate for every company in the Zacks Office Automation and Equipment industry, but rather an illustrative aggregate number created by our proprietary analytics model. The key factor to keep in mind is not the EPS of the industry for 2018, but how this projection has evolved recently.
As you can see here, the $2.12 EPS estimate for 2018 has remained steady from the end of August.
Current Fiscal Year EPS Estimate Revisions
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The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term.
The Zacks Office Automation and Equipment currently carries a Zacks Industry Rank #227, which places it at the bottom 11% of 256 Zacks industries. 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.
Now, looking at the past revenue performances, the prospects of the industry also appear to be bleak.
Bottom Line
A slow market growth rate, impact of digitization and looming tensions over a trade war could weigh on the prospects of the Office Automation and Equipment industry. Below are two stocks that carry a bearish Zacks Rank that we would recommend investors to stay away from for the time being.
Konica Minolta Inc. (KNCAY - Free Report) : Tokyo-based Konica Minolta carries a Zacks Rank #5 (Strong Sell). The consensus EPS estimate for the company has moved 10.1% lower for the current year, over the last 60 days.
Price and Consensus: KNCAY
Seiko Epson Corp. (SEKEY - Free Report) : Nagano, Japan-based Seiko carries a Zacks Rank #4 (Sell). The consensus estimate for the company has remained unchanged at 71 cents for the current year over the past 60 days.
Price and Consensus: SEKEY
However, below is a stock that investors can pick to gain exposure in this industry.
Ricoh Co. (RICOY - Free Report) : Tokyo-based Ricoh carries a Zacks Rank #2 (Buy). The consensus estimate for the company has remained unchanged at 64 cents for the current year over the last 60 days.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: RICOY
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6% and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>