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3 Office Equipment Stocks to Watch in a Prospering Industry

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The Zacks Office Automation and Equipment Industry participants like Canon (CAJ - Free Report) , Seiko Epson (SEKEY - Free Report) and Pitney Bowes (PBI - Free Report) are gaining from growing demand for coronavirus-led medical equipment systems and inkjet printers, thanks to the ongoing spike in demand for work-from-home and online learning.

Nevertheless, the industry is facing supply-chain disruption due to the coronavirus pandemic along with a tough operating environment and a saturated market. Further, coronavirus-led remote working is hurting demand for office products. Moreover, macro-economic slowdown, increasing forex risk in emerging markets and heightened price competition are hurting industry participants.

Industry Description

The Zacks Office Automation and Equipment Industry comprises companies that provide products and services related to printing solutions, digital cameras, healthcare and industrial businesses. The industry participants are located in Japan and the United States. Companies like Canon are launching new full-frame mirrorless products amid declining demand for SLR cameras.

3 Trends Shaping the Future of the Office Automation and Equipment Industry

Supply-Chain Constraints Hurting Growth: Companies in the industry are suffering production and supply-chain constraints. 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.

Sluggish Demand for Office Equipment Mars Prospects: 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.

Remote Working Lowering Demand: 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 (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 Bright Prospects

The Zacks Office Automation and Equipment industry is housed within the broader Zacks Computer And Technology sector. It carries a Zacks Industry Rank #42, which places it in the top 17% 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 bright 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Dec 31, 2020, the industry’s earnings estimates for the current year have moved 36% north.

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 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 returned 15.3% over this period against the Zacks Computer and Technology sector’s increase of 7.1% and the S&P 500’s rally of 52.8%.

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 20.70X compared with the S&P 500’s 23.11X and the sector’s 28.42X.

Over the past five years, the industry has traded as high as 24.13X and as low as 12.32X, recording a median of 16.68X, as the chart below shows.

 

Forward 12-Month Price-to-Earnings (P/E) Ratio

 

 

3 Stocks to Watch Out For

Canon: This Zacks Rank #1 (Strong Buy) is benefiting from strong demand for inkjet printers, particularly in the Asia-Pacific market. You can see the complete list of today’s Zacks #1 Rank stocks here.

Further, strong demand for medical equipment is anticipated to boost Medical System’s top-line growth.

The company, in its business policy briefing, announced its five-year plans that include initiatives to expand market share in printing business. Canon plans to tap demand for distributed printing and enhance product competitiveness. The company also intends to create a new optical business.


Tokyo, Japan-based Canon has returned 12.2% in the past year. The Zacks Consensus Estimate for its current-year earnings has moved 5.6% up to $1.13 per share over the past 30 days.

Price and Consensus: CAJ

 

Pitney Bowes: This Zacks Rank #3 is gaining from growth in Global Ecommerce segment revenues amid coronavirus crisis-led e-commerce boom. Solid momentum in Domestic Parcel Delivery services and increasing volumes in Digital Delivery, Mail Flats and Bound Printed Matter are expected to boost the top line going ahead. Further, improvement in business services, driven by increased usage of shipping offerings, bodes well for the company’s prospects. Moreover, Pitney Bowes has been undergoing a steady transformation process over the past three years, designed to create long-term flexibility for investment toward growth. The company aims to stabilize its SMB business, enhance operational excellence and leverage digital commerce business to maximize growth over the long term.

This Stamford, CT-based stock has gained 274.3% in the past year. The consensus mark for its current-year earnings has stayed flat at 35 cents per share over the past 30 days.

Price and Consensus: PBI

 

 

Seiko Epson: Suwa, Japan-based Seiko also has a Zacks Rank #3. The company is expected to benefit from growing demand for high-capacity ink tank printers, ink cartridge printers, projectors and robots. Moreover, the company expects supply shortage situation to normalize in the fourth quarter.

The stock has returned 69.3% in the past year. The Zacks Consensus Estimate for the company’s current-year earnings has remained stable at 17 cents per share over the past 30 days.

Price and Consensus: SEKEY

 

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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