The coronavirus pandemic since its onsethas been causing supply chain disruptions globally, which has impacted the Zacks Electronics – Measuring Instruments industry negatively. Notably, slowdown in global auto-production and sluggish demand for electronics in major end-markets have cast a shadow on the industry’s prospects.
However, Keysight Technologies (KEYS - Free Report) , Nova Measuring Instruments (NVMI - Free Report) , Camtek (CAMT - Free Report) and inTEST Corporation (INTT - Free Report) are well-set to benefit from 5G-related growth opportunities. Moreover, increasing need for security and surveillance system, and rapid proliferation of consumer-oriented smart IoT devices such as smart speakers and home security equipments remain the silver lining for these industry participants.
The Zacks Electronics – Measuring Instruments industry comprises companies that offer wearables, test solutions and equipment, metrology solutions, and thermo management products.
The major end-markets being served by this particular industry are consumer, automobile, industrial, aerospace & defense, semiconductor, healthcare and communications, to name a few.
4 Trends Shaping the Future of Electronics – Measuring Instruments Industry
Weak Consumer Electronics Demand Remains a Woe: Sluggishness in consumer electronics market remains a major headwind for the industry. The ongoing coronavirus pandemic, which has affected almost all economies globally, has been impacting consumer electronics sales negatively, primarily owing to shutdown of electronics retail shops and showrooms. Further, global supply chain disruptions across consumer electronics brands are major concerns. Apart from headwinds related to the pandemic, the consumer electronics market encountersunpredictable changes in tastes on the demand side, and supplier-related delays, which are inherently risky.
Sluggish Automotive Sector Mars Prospects: Softness in the automotive sector, which has been bearing the brunt of worldwide factory shutdown and supply chain disruptions owing to the ongoing coronavirus pandemic, is wreaking havoc on the industry participants. Weakening consumer confidence and declining demand for vehicles remain concerns for the near-term performance of the measuring instruments stocks. Further, slowdown in auto production globally and sluggishness in commercial transportation space are major headwinds.
Solid Adoption of Fitness Trackers: The coronavirus-induced crisis situation has led to increased focus on personal fitness, health and wellness. This, in turn, has put emphasis on the importance of fitness and wellness trackers and smart watches, which help in personal health monitoring. Growing proliferation of these devices has fueled the usage for flat-panel display (FPD) technology. Further, rising demand for Augmented Reality (AR)/Virtual Reality (VR) devices and OLED displays have been playing a significant role in driving demand for FPDs. These factors are creating an extremely conducive environment for growth of the industry players.
5G Prospects Are a Key Catalyst: The growing deployment of5G holds near-term promisefor the industry participants. An uptick in the demand for 5G test solutions,which are required for 5G deployment, is a major positive. Moreover, the current coronavirustriggeredwork-from-home wave globally, which is bolstering demand for high-speed Internet services, bodes well for the electronic companies that are enhancing their 5G efforts. Additionally, the growing number of high-speed datacenters worldwide is a tailwind. Given this upbeat scenario, the industry is anticipated to remain ongrowth trajectorybacked by strong efforts made toward bolstering 5G strength.
Zacks Industry Rank Indicates Bleak Prospects
The ZacksElectronics - Measuring Instruments industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #127, which places it in the bottom 49% 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 bearish 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 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 Apr 30, the industry’s 2020 earnings estimates have decreased 12.7%.
Despite gloomy industry outlook, few stocks have the potential to outperform the market based on a strong earnings outlook. 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 Lags Sector and S&P 500
The Zacks Electronics – Measuring Instruments industry has underperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite over the past year.
The industry has returned 3.4% over this period compared with the S&P 500 and the broader sector’s rally of 12.5% and 32.4%, respectively.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Electronics – Measuring Instruments stocks, the industry is currently trading at 3.34X, lower than the S&P 500’s 4.08X and the sector’s 4.33X.
Over the past five years, the industry has traded as high as 3.71X and as low as 0.98X, with the median being at 1.72X as the charts below show.
Forward 12-Month P/S Ratio
4 Measuring Instruments Stocks to Keep a Close Eye on
Keysight Technologies: This Santa Rosa, CA-headquartered company is well-poised to capitalise on accelerating 5G deployment, courtesy of rising demand for 5G test solutions. Further, as semiconductor companies look to develop chips based on next-generation process technologies, demand for its semiconductor measurement solutions has been on the rise.
Although the shares of Keysight Technologies have declined 5.3% in the past year, this Zacks Rank #2 (Buy) company, which is a provider of electronic design and test instrumentation systems, is likely togain from improving supply chain management and high government spending. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, the Zacks Consensus Estimate for 2020 earnings has been revised upward by 10.5% over the last 30 days to $4.63 per share.
Price and Consensus: KEYS
Nova Measuring Instruments: The Israel-based company is riding on solid momentum across large foundry/logic customers and memory providers. Further, the company is gaining strong traction among customers on the back of its proactive service packages thatare designed to improve the install base productivity and metrology capabilities.
Further, this Zacks Rank #2 company, which offers advanced metrology solutions includingmonitoring and measurement systems for the semiconductor manufacturing industry, is benefiting from its Nova ASTERA platform. Notably, the platform is strengthening the company’s presence in the integrated metrology process control space.
Notably, Nova Measuring Instruments has gained 53.9% over a year. The Zacks Consensus Estimate for 2020 earnings has remained stable at $1.70 per share over the last 30 days.
Price and Consensus: NVMI
Camtek: The Israel-based manufacturer of metrology and inspection equipment benefits from growing share in 2D inspection market. The company is benefiting from its robust system performance across 2D applications. Additionally, increasing demand for 5G related applications remains a tailwind.
Further, this Zacks Rank #3 (Hold) company is well positioned to capitalize on the rising demand for semiconductor devices on the back of its software solutions that are utilized in advanced packaging, memory, sensors and MEMS. Notably, Camtek has returned 56% in the past year.
The Zacks Consensus Estimate for 2020 earnings has remained stable at 61 cents per share over the last 30 days.
Price and Consensus: CAMT
inTEST: The Mount Laurell, NJ-headquartered company is benefiting from an uptick in semiconductor demand. Further, the company is gaining from solid momentum across electric vehicle manufacturers.
Although the shares of inTEST have declined 1.5% in the past year, this Zacks Rank #3 company, which is a provider of offers thermal management products and ATE interface solutions is well-poised to capitalize on the rising demand for thermonics cryogenic process chillers.
Notably, the Zacks Consensus Estimate for 2020 earnings has been revised upward by 25% over the last 30 days to 10 cents per share.
Price and Consensus: INTT