The Zacks Office Automation and Equipment Industry comprises companies that provide products and services related to printing solutions, healthcare and industrial businesses. The industry participants are located in Japan and the United States.
Here are the industry’s three major themes:
- Companies in the industry are expected to suffer production and supply-chain constraints due to the coronavirus outbreak in China and shelter-in-home guidelines globally. Additionally, increased product offerings from local manufacturers along with their low-cost alternatives are forcing industry participants to slash prices. This is eating into the industry participants’ bottom line.
- Soft demand for copiers and office equipment due to increasing adoption of smartphones and portable devices has been detrimental to the industry’s growth. Heavy investments in technology to innovate and customize products specific to client requirements is dragging down margins. Additionally, with product life cycles being short, investments in research and development are increasing.
- The increasing adoption of bring-your-own-device (BYOD) in offices is boosting demand for automated software solutions, thereby lowering the need for office equipment and printers. Moreover, accelerating digital exchange of information, particularly aided by the coronavirus outbreak, has lowered print volume. Markedly, the coronavirus-induced work-from-home wave has boosted demand for video communication and remote working solutions provided by the likes of Zoom Video (ZM - Free Report) , Cisco (CSCO - Free Report) , Microsoft (MSFT - Free Report) and others. This is expected to mar industry participants’ prospects
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Office Automation and Equipment industry is housed within the broader Zacks Computer And Technology sector. It carries a Zacks Industry Rank #248, which places it in the bottom 2% 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 bleak 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 negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions it appears that analysts are pessimistic on this group’s earnings growth potential. Since Mar 31, 2019, the industry’s earnings estimates for the current year have moved 41% south.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture
Industry Underperforms S&P 500 & Sector
The Zacks Office Automation and Equipment industry has underperformed the Zacks S&P 500 composite as well as its own sector in the past year.
The industry has lost 28.6% over this period against the Zacks Computer and Technology sector’s increase of 28.8% and the S&P 500’s rally of 9.8%.
One Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing Office Automation and Equipment stocks, the industry is currently trading at 19.84X compared with the S&P 500’s 23.01X and the sector’s 26.52X.
Over the past five years, the industry has traded as high as 19.84X and as low as 12.32X, recording a median of 15.48X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch Out For
The supply-chain disruption due to the coronavirus pandemic along with a tough operating environment and a saturated market is expected to hurt the performance of industry participants in the near term.
None of the stocks in the industry carries a Zacks Rank #1 (Strong Buy) or Rank 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Here, we present couple of stocks with a Zacks Rank #3 (Hold) that investors may choose to hold for the time being.
Canon (CAJ - Free Report) : Tokyo, Japan-based Canon has lost 31.2% in the past year. The Zacks Consensus Estimate for the company’s current-year earnings has moved 9.4% down to 87 cents over the past 30 days.
Price and Consensus: CAJ
Pitney Bowes Inc. (PBI - Free Report) : This Stamford, CT-based stock has lost 24.9% in the past year. The Zacks Consensus Estimate for its current-year earnings has stayed flat at 23 cents per share over the past 30 days.
Price and Consensus: PBI