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3 Top Stocks From the Thriving Instruments Control Industry
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The Zacks Instruments – Control industry should benefit from the increasing demand for energy efficient production processes, safety and security concerns and software systems. In the United States, process manufacturing is aided by replacement of obsolete industrial control systems with state-of-the-art technologies.
Disruptions in the supply chain due to the pandemic have hurt the process automation and instrumentation market. Nevertheless, Watts Water Technologies, Inc. (WTS - Free Report) , Allied Motion Technologies Inc. and Sensata Technologies Holding plc (ST - Free Report) are likely to benefit from the growing importance of energy efficiency and cost reduction, digitized technologies, adoption of industrial automation and optimum utilization of resources.
Industry Description
The Zacks Instruments – Control industry comprises manufacturers of precision and specialty motion control components and systems that are used in a wide range of industries worldwide. These companies deliver sophisticated flow measurement, control and communication solutions for air, water and other forms of gas and liquid used in commercial and residential purposes. The firms offer an array of products for fuel, combustion, fluid, actuation, electronic applications, energy control and optimization, particularly for the process industry.
Some industry participants offer heating, ventilation and air conditioning products. These include water heaters and electric heating systems for under-floor radiant applications for boiler manufacturers and alternative energy control packages. Also, few firms within the industry provide water re-use products, consisting of drainage and rainwater harvesting solutions for industrial, marine and residential applications.
3 Trends Shaping the Future of Instruments – Control Industry
Process Automation to Drive Growth: Increasing focus on adopting automation across all industry verticals and spending more on new technologies are expected to be major drivers for the next few years. North America is expected to continue dominating the market in terms of adopting automation. Rising infrastructural investments in the energy and power sector, increasing demand for food and beverages, along with favorable government policies are aiding the growth. The process automation and instrumentation market for the pharmaceutical industry is also growing due to low-cost factors and a changing regulatory environment. Focus on high-quality equipment indicates increasing buyer maturity and willingness to partner with process control industry players.
Economic Stimulus: In response to the economic fallout of the global pandemic, the United States has passed a bill named the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. Under this, $2.2 trillion will be spent under five components, namely individuals or families, big businesses, small businesses, state and local governments and public services. Demand for process automation and instrumentation products and solutions are dependent on manufacturing activities. So, the measures taken by different governments will help drive growth of the companies involved in the development of process automation and instrumentation products and solutions.
Field Instruments to Lead the Pack: Field instruments play an important role in process control by measuring the key elements such as temperature, pressure, flow and level in process industries such as chemicals, mining and pharmaceuticals. They consist of transmitters that mainly measure pressure, flow, temperature, level and humidity of liquid and gases, which are essential to achieve optimum productivity. Importantly, such instruments are used in environmental, social and governance practices to reduce consumption of natural resources, adopting an eco-friendly portfolio of products and solutions. A differentiated product offering gives greater opportunity for companies to augment their market position.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Instruments – Control industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #66, which places it in the top 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Interestingly, 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 top 50% of the Zacks-ranked industries is an outcome of a positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since June 2020, the industry’s earnings estimates for the current year and the next have increased 4% and 1.2%, respectively.
Before we present a few 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 Underperforms Sector, S&P 500
The Zacks Instruments – Control industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has lost 11.4% against the S&P 500’s rise of 12%. The broader sector has risen 30.9%.
One-Year Price Performance
Industry’s Current Valuation
The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing instruments control stocks. The industry has a trailing 12-month EV/EBITDA of 11.25X compared with the S&P 500’s 14.51X. It is also below the sector’s trailing 12-month EV/EBITDA of 14.26X.
Over the past five years, the industry has traded as high as 12.91X, as low as 6.78X with the median of 11.32X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Instruments Control Stocks to Keep a Close Eye On
Watts Water Technologies: This North Andover, MA-based company provides one of the broadest plumbing, heating and water quality product lines in the world. Watts Water sports a Zacks Rank #1 (Strong Buy), at present. The Zacks Consensus Estimate for its current-year earnings has been revised 2.4% upward over the past 30 days. The stock has added 7.1% in the past year against the industry’s 11.9% decline. The company is focused on accelerating organic growth, driving margin expansion and reinvesting in productivity initiatives. Moreover, the recent acquisition of Australian Valve Group Pty Ltd (AVG) has enhanced its product offering and channel access into the Australian marketplace. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: WTS
Allied Motion Technologies: This Amherst, NY-based company manufactures and sells precision and specialty controlled motion products and solutions that are used in a broad range of industries. It has global operations and sells into markets across the United States, Canada, South America, Europe and Asia. Allied Motion carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has been revised 41.6% upward over the past 60 days. The stock has added 5.1% in the past year. The company is focused on controlled motion applications and is known worldwide for its expertise in electro-magnetic, mechanical and electronic motion technology.
Price and Consensus: AMOT
Sensata Technologies: Based in Attleboro, MA, Sensata Technologies is a leading industrial technology company that develops sensors, sensor-based solutions including controllers and software, and other mission-critical products. The stock carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has been revised 2.9% upward over the past 30 days. The stock has rallied 71.1% in the past six months. Sensata Technologies has raised its guidance for the third quarter of 2020, thanks to increased business activity especially in its Automotive business in Europe and the United States, which has translated into higher orders and deliveries. It expects revenues to be in the range of $735-$765 million (up from the previous guidance of $675-$705 million provided on Jul 28). Adjusted earnings per share are estimated between 50 cents and 56 cents, up from the earlier guidance of 38-46 cents.
Price and Consensus: ST
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
3 Top Stocks From the Thriving Instruments Control Industry
The Zacks Instruments – Control industry should benefit from the increasing demand for energy efficient production processes, safety and security concerns and software systems. In the United States, process manufacturing is aided by replacement of obsolete industrial control systems with state-of-the-art technologies.
Disruptions in the supply chain due to the pandemic have hurt the process automation and instrumentation market. Nevertheless, Watts Water Technologies, Inc. (WTS - Free Report) , Allied Motion Technologies Inc. and Sensata Technologies Holding plc (ST - Free Report) are likely to benefit from the growing importance of energy efficiency and cost reduction, digitized technologies, adoption of industrial automation and optimum utilization of resources.
Industry Description
The Zacks Instruments – Control industry comprises manufacturers of precision and specialty motion control components and systems that are used in a wide range of industries worldwide. These companies deliver sophisticated flow measurement, control and communication solutions for air, water and other forms of gas and liquid used in commercial and residential purposes. The firms offer an array of products for fuel, combustion, fluid, actuation, electronic applications, energy control and optimization, particularly for the process industry.
Some industry participants offer heating, ventilation and air conditioning products. These include water heaters and electric heating systems for under-floor radiant applications for boiler manufacturers and alternative energy control packages. Also, few firms within the industry provide water re-use products, consisting of drainage and rainwater harvesting solutions for industrial, marine and residential applications.
3 Trends Shaping the Future of Instruments – Control Industry
Process Automation to Drive Growth: Increasing focus on adopting automation across all industry verticals and spending more on new technologies are expected to be major drivers for the next few years. North America is expected to continue dominating the market in terms of adopting automation. Rising infrastructural investments in the energy and power sector, increasing demand for food and beverages, along with favorable government policies are aiding the growth. The process automation and instrumentation market for the pharmaceutical industry is also growing due to low-cost factors and a changing regulatory environment. Focus on high-quality equipment indicates increasing buyer maturity and willingness to partner with process control industry players.
Economic Stimulus: In response to the economic fallout of the global pandemic, the United States has passed a bill named the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. Under this, $2.2 trillion will be spent under five components, namely individuals or families, big businesses, small businesses, state and local governments and public services. Demand for process automation and instrumentation products and solutions are dependent on manufacturing activities. So, the measures taken by different governments will help drive growth of the companies involved in the development of process automation and instrumentation products and solutions.
Field Instruments to Lead the Pack: Field instruments play an important role in process control by measuring the key elements such as temperature, pressure, flow and level in process industries such as chemicals, mining and pharmaceuticals. They consist of transmitters that mainly measure pressure, flow, temperature, level and humidity of liquid and gases, which are essential to achieve optimum productivity. Importantly, such instruments are used in environmental, social and governance practices to reduce consumption of natural resources, adopting an eco-friendly portfolio of products and solutions. A differentiated product offering gives greater opportunity for companies to augment their market position.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Instruments – Control industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #66, which places it in the top 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Interestingly, 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 top 50% of the Zacks-ranked industries is an outcome of a positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since June 2020, the industry’s earnings estimates for the current year and the next have increased 4% and 1.2%, respectively.
Before we present a few 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 Underperforms Sector, S&P 500
The Zacks Instruments – Control industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has lost 11.4% against the S&P 500’s rise of 12%. The broader sector has risen 30.9%.
One-Year Price Performance
Industry’s Current Valuation
The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing instruments control stocks. The industry has a trailing 12-month EV/EBITDA of 11.25X compared with the S&P 500’s 14.51X. It is also below the sector’s trailing 12-month EV/EBITDA of 14.26X.
Over the past five years, the industry has traded as high as 12.91X, as low as 6.78X with the median of 11.32X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Instruments Control Stocks to Keep a Close Eye On
Watts Water Technologies: This North Andover, MA-based company provides one of the broadest plumbing, heating and water quality product lines in the world. Watts Water sports a Zacks Rank #1 (Strong Buy), at present. The Zacks Consensus Estimate for its current-year earnings has been revised 2.4% upward over the past 30 days. The stock has added 7.1% in the past year against the industry’s 11.9% decline. The company is focused on accelerating organic growth, driving margin expansion and reinvesting in productivity initiatives. Moreover, the recent acquisition of Australian Valve Group Pty Ltd (AVG) has enhanced its product offering and channel access into the Australian marketplace. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: WTS
Allied Motion Technologies: This Amherst, NY-based company manufactures and sells precision and specialty controlled motion products and solutions that are used in a broad range of industries. It has global operations and sells into markets across the United States, Canada, South America, Europe and Asia. Allied Motion carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has been revised 41.6% upward over the past 60 days. The stock has added 5.1% in the past year. The company is focused on controlled motion applications and is known worldwide for its expertise in electro-magnetic, mechanical and electronic motion technology.
Price and Consensus: AMOT
Sensata Technologies: Based in Attleboro, MA, Sensata Technologies is a leading industrial technology company that develops sensors, sensor-based solutions including controllers and software, and other mission-critical products. The stock carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has been revised 2.9% upward over the past 30 days. The stock has rallied 71.1% in the past six months. Sensata Technologies has raised its guidance for the third quarter of 2020, thanks to increased business activity especially in its Automotive business in Europe and the United States, which has translated into higher orders and deliveries. It expects revenues to be in the range of $735-$765 million (up from the previous guidance of $675-$705 million provided on Jul 28). Adjusted earnings per share are estimated between 50 cents and 56 cents, up from the earlier guidance of 38-46 cents.
Price and Consensus: ST
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>