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3 Top Stocks From the Thriving Instruments Control Industry
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The Zacks Instruments – Control industry is expected to benefit from the increasing demand for energy-efficient production processes, safety and security concerns and software systems. In the United States, process manufacturing is supported by the 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, SensataTechnologies Holding plc (ST - Free Report) , Woodward, Inc. (WWD - Free Report) and Watts WaterTechnologies, Inc. (WTS - Free Report) are well positioned to benefit from the growing importance of energy efficiency and cost reduction, digitized technologies, adoption of industrial automation and optimum utilization of resources.
About the Industry
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 for commercial and residential purposes. The companies offer a range 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.
What’s 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 growth drivers over 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.
Growing Demand for Digitized Technologies: The growth of the industry is largely driven by an emphasis on digitized technologies such as the Industrial Internet of Things. The demand for process automation and instrumentation products is dependent on manufacturing activities. Moreover, demand for safety automation systems and multivariable pressure transmitters is likely to provide significant growth opportunities. The use of process instrumentation equipment offers a host of benefits, including improvement in the quality of the product and emission reduction. So, the increase in adoption of technology across various industries, along with growing regulation and compliance, will continue to be major growth drivers.
Field Instruments to Lead the Pack: Field instruments play a significant 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. These consist of transmitters that primarily measure pressure, flow, temperature, level and humidity of liquid and gases, which are essential for achieving 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 boost 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 #68, which places it in the top 27% 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 outperform 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 have gained confidence in this group’s earnings growth potential. Since July 2020, the industry’s earnings estimates for the current year and the next have increased 11.8% and 2.4%, respectively.
Before we present a few instruments control 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 gained 9.3% compared with the S&P 500’s rise of 16.3%. The broader sector has risen 42%.
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 15.48X compared with the S&P 500’s 17.04X. It is also below the sector’s trailing 12-month EV/EBITDA of 17.03X.
Over the past five years, the industry has traded as high as 16.34X, as low as 6.78X with the median of 11.51X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Instruments Control Stocks to Keep a Close Eye On
Sensata Technologies: Headquartered in Attleboro, MA, Sensata Technologies is a leading industrial technology company that develops sensors, sensor-based solutions and other mission-critical products. It operates in two segments — Performance Sensing and Sensing Solutions. The company is focused on the advancement of standardized vehicle charging systems. It has acquired the majority of Denmark-based Lithium Balance. The acquisition accelerates Sensata’s efforts in electrification and Battery Management Systems. The development is likely to aid its performance, going forward. Sensata has raised its revenue guidance for the fourth quarter of 2020. The company saw increased business activity during the quarter, particularly in its Automotive and Industrial businesses, which translated into higher orders and deliveries than initially expected. The Zacks Consensus Estimate for its current-year earnings has been revised 4.4% upward over the past 60 days. The stock has gained 41.2% in the past six months compared with the industry’s 42.6% growth. Sensata currently carries a Zacks Rank #2 (Buy).
Woodward: Headquartered in Fort Collins, CO, Woodward is an independent designer, manufacturer and service provider of control system solutions and components for the aerospace and industrial markets. It operates in two segments — Aerospace and Industrial. The company’s innovative fluid, combustion, electrical and motion control systems help customers offer cleaner and more efficient equipment. Its customers include leading original equipment manufacturers and end users of their products. The consensus estimate for its current-year earnings has been revised 0.9% upward over the past 60 days. The stock has returned 51.5% in the past six months. Woodward carries a Zacks Rank #2.
Price and Consensus: WWD
Watts Water Technologies: Headquartered in North Andover, MA, Watts Water is a global manufacturer that provides one of the broadest plumbing, heating and water quality product lines. Its brands offer innovative solutions for commercial, residential and industrial applications. The company is focused on accelerating organic growth, driving margin expansion and reinvesting in productivity initiatives. The consensus estimate for its current-year earnings has been revised 0.8% upward over the past 60 days. The stock has moved up 46.1% in the past six months. Watts Water carries a Zacks Rank #2.
Price and Consensus: WTS
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 is expected to benefit from the increasing demand for energy-efficient production processes, safety and security concerns and software systems. In the United States, process manufacturing is supported by the 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, Sensata Technologies Holding plc (ST - Free Report) , Woodward, Inc. (WWD - Free Report) and Watts Water Technologies, Inc. (WTS - Free Report) are well positioned to benefit from the growing importance of energy efficiency and cost reduction, digitized technologies, adoption of industrial automation and optimum utilization of resources.
About the Industry
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 for commercial and residential purposes. The companies offer a range 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.
What’s 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 growth drivers over 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.
Growing Demand for Digitized Technologies: The growth of the industry is largely driven by an emphasis on digitized technologies such as the Industrial Internet of Things. The demand for process automation and instrumentation products is dependent on manufacturing activities. Moreover, demand for safety automation systems and multivariable pressure transmitters is likely to provide significant growth opportunities. The use of process instrumentation equipment offers a host of benefits, including improvement in the quality of the product and emission reduction. So, the increase in adoption of technology across various industries, along with growing regulation and compliance, will continue to be major growth drivers.
Field Instruments to Lead the Pack: Field instruments play a significant 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. These consist of transmitters that primarily measure pressure, flow, temperature, level and humidity of liquid and gases, which are essential for achieving 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 boost 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 #68, which places it in the top 27% 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 outperform 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 have gained confidence in this group’s earnings growth potential. Since July 2020, the industry’s earnings estimates for the current year and the next have increased 11.8% and 2.4%, respectively.
Before we present a few instruments control 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 gained 9.3% compared with the S&P 500’s rise of 16.3%. The broader sector has risen 42%.
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 15.48X compared with the S&P 500’s 17.04X. It is also below the sector’s trailing 12-month EV/EBITDA of 17.03X.
Over the past five years, the industry has traded as high as 16.34X, as low as 6.78X with the median of 11.51X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Instruments Control Stocks to Keep a Close Eye On
Sensata Technologies: Headquartered in Attleboro, MA, Sensata Technologies is a leading industrial technology company that develops sensors, sensor-based solutions and other mission-critical products. It operates in two segments — Performance Sensing and Sensing Solutions. The company is focused on the advancement of standardized vehicle charging systems. It has acquired the majority of Denmark-based Lithium Balance. The acquisition accelerates Sensata’s efforts in electrification and Battery Management Systems. The development is likely to aid its performance, going forward. Sensata has raised its revenue guidance for the fourth quarter of 2020. The company saw increased business activity during the quarter, particularly in its Automotive and Industrial businesses, which translated into higher orders and deliveries than initially expected. The Zacks Consensus Estimate for its current-year earnings has been revised 4.4% upward over the past 60 days. The stock has gained 41.2% in the past six months compared with the industry’s 42.6% growth. Sensata currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: ST
Woodward: Headquartered in Fort Collins, CO, Woodward is an independent designer, manufacturer and service provider of control system solutions and components for the aerospace and industrial markets. It operates in two segments — Aerospace and Industrial. The company’s innovative fluid, combustion, electrical and motion control systems help customers offer cleaner and more efficient equipment. Its customers include leading original equipment manufacturers and end users of their products. The consensus estimate for its current-year earnings has been revised 0.9% upward over the past 60 days. The stock has returned 51.5% in the past six months. Woodward carries a Zacks Rank #2.
Price and Consensus: WWD
Watts Water Technologies: Headquartered in North Andover, MA, Watts Water is a global manufacturer that provides one of the broadest plumbing, heating and water quality product lines. Its brands offer innovative solutions for commercial, residential and industrial applications. The company is focused on accelerating organic growth, driving margin expansion and reinvesting in productivity initiatives. The consensus estimate for its current-year earnings has been revised 0.8% upward over the past 60 days. The stock has moved up 46.1% in the past six months. Watts Water carries a Zacks Rank #2.
Price and Consensus: WTS
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 >>