Electronics - Manufacturing Machinery industry is expected to benefit from increased capital spending on high-performance computing, advanced packaging and memory by semiconductor manufacturers. Rising need for data center, notebooks (due to coronavirus-induced remote working and learning) and gaming (user base has expanded due to lockdowns and shelter-in-place guidelines) is driving memory demand. Entegris ( ENTG Quick Quote ENTG - Free Report) , MKS Instruments ( MKSI Quick Quote MKSI - Free Report) , Brooks Automation ( BRKS Quick Quote BRKS - Free Report) and Ultra Clean Technology ( UCTT Quick Quote UCTT - Free Report) are gaining from the above-mentioned trends. These companies provide solutions to semiconductor manufacturers and OEMs. Although weak smartphone demand has been a concern, strength in cloud & data center as well as gaming has been a key catalyst. Industry Description
The Zacks Electronics - Manufacturing Machinery industry comprises companies that provide a range of solutions to address the needs of wafer processing facilities as well as device packaging and test facilities of semiconductor manufacturing processes. The solutions offered by the industry participants include thin-film processing systems, photonics, process control tools (that perform macro defect inspections and metrology), metal organic chemical vapor deposition, advanced packaging lithography, wet etch and clean, laser annealing, and 3D wafer inspection systems. A few industry participants also offer microcontamination control products and advanced materials handling solutions. Notably, contamination-free transportation, storage and delivery of materials have gained immense significance in recent times.
3 Trends Shaping the Future of the Electronics Industry
: Industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. The demand for advanced packaging that enables the miniaturization of electronic products remains strong. Consistent shift to smaller dimensions and rapid adoption of new device architectures like FinFET transistors and 3D-NAND along with increasing utilization of new manufacturing materials to increase transistor and bit density are driving demand for solutions provided by the industry players. Moreover, emergence of techniques like wafer level packaging (WLP) is driving the need for a high-purity manufacturing environment, free of contaminants. The rising demand for clean processing as well as wafer carrier cleaning and conditioning tools is a key catalyst for the industry participants. Miniaturization Enhances Prospects : The requirement of faster, more powerful and more energy efficient semiconductors is expected to increase rapidly on robust adoption of cloud computing, IoT and AI. Semiconductor manufacturers like Intel, Samsung, Taiwan Semiconductors are primarily looking to maximize manufacturing yields at lower costs. This is actually making semiconductor manufacturing processes more complex and in turn driving demand for solutions offered by the industry participants. The rapid adoption of IoT-supported factory automation solutions is also a contributing factor. Further, increasing deployment of 5G and growing demand for edge computing are key catalysts. However, U.S.-China trade tensions and the impact of coronavirus on consumer appetite for next-gen smartphones are notable headwinds. Complex Process Driving Demand : Improving demand for particularly NAND and DRAM is a positive for the industry participants. Moreover, strong SSD demand driven by data center and cloud spending is a key catalyst. DRAM is also expected to benefit from strong demand in the data center, enterprise and cloud segments. Additionally, strong new equipment spending is a major positive. Strong NAND, DRAM & SSD Demand Zacks Industry Rank Indicates Solid Prospects
The Zacks Electronics - Manufacturing Machinery industry is housed within the broader Zacks
Computer and Technology sector. It carries a Zacks Industry Rank #29, which places it in the top 12% 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 robust 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. 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 Outperforms Sector and S&P 500
The Zacks Electronics - Manufacturing Machinery industry has outperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite over the past year.
The industry has gained 87% over this period compared with the S&P 500’s rally of 37.4% and the broader sector’s increase of 48%. One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Electronics - Manufacturing Machinery companies, we see that the industry is currently trading at 20.23X compared with the S&P 500’s 17.54X. It is also above the sector’s trailing-12-month EV/EBITDA of 17.30X.
Over the last five years, the industry has traded as high as 20.75X, as low as 10.26X and at the median of 14.30X, as the chart below shows. EV/EBITDA Ratio (TTM)
4 Electronics Stocks to Buy Right Now
Brooks Automation: This Chelmsford, MA-based company is benefiting from robust growth in its life sciences business driven by COVID-19-led demand. Moreover, this global provider of semiconductor manufacturing automation solutions and life science sample-based services and solutions has significantly expanded its life science clientele. Markedly, China also offers significant growth opportunity for its life sciences segment. Moreover, solid demand for contamination control solutions remains a key catalyst. Higher capex spending by the likes of Taiwan Semiconductor, Intel ( INTC Quick Quote INTC - Free Report) and Samsung benefits Brooks Automation. The Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 17.5% to $2.35 per share over the past 60 days. This Zacks Rank #1 (Strong Buy) company has gained 136.4% in the past year. Price and Consensus: BRKS
MKS Instruments: This Zacks Rank #1 company prospects are driven by an improving semiconductor market and increased demand, particularly for Power Solutions. Moreover, continuing strong demand for the company’s plasma and reactive gas solutions, especially in semiconductor deposition applications, is a key catalyst. In wet clean applications, the company’s solutions are seeing solid traction. MKS is also benefiting from a lean cost structure. The ESI acquisition has strengthened the company’s offerings in optics, photonics and laser markets apart from saving costs. The latest HDI PCB laser-manufacturing solution has been gaining traction in Asia. The Zacks Consensus Estimate for its 2021 earnings has risen 27.5% to $11.22 per share over the past 60 days. MKSshares are up 70.7% in the past year. Price and Consensus: MKSI
Ultra Clean Holdings: This Hayward, CA-based company is benefiting from an expanding clientele. Robust demand for its part cleaning, surface encapsulation and high sensitivity micro contamination analysis solutions is a key catalyst. Moreover, recovery in wafer fab utilization bodes well for this Zacks Rank #2 (Buy) company. Further, the company’s strong exposure to etch and deposition market as well as an expanding global footprint is a major positive. The Zacks Consensus Estimate for its 2021 earnings has moved up 14% to $3.86 per share in the past 60 days. Ultra Clean’s shares are up 160.7% in the past year. Price and Consensus: UCTT
Entegris: This Billerica, MA-based company provides microcontamination control products, specialty chemicals and advanced materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries. This Zacks Rank #2 stock is benefiting from solid demand for its leading-edge solutions in advanced technology nodes and increasing need for end-to-end contamination control solutions. Further, the acquisition of GMTI strengthens Entegris’ position as the premier supplier of yield enhancement solutions for the semiconductor market. Markedly, the consensus mark for its current-year earnings has risen 8.1% to $3.19 per share over the past 60 days. Entegris’ shares have gained 85.3% in the past year. Price and Consensus: ENTG
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