Electronics – Testing Equipment industry has been benefiting from 5G-related growth opportunities, strengthening automation drive, and learn-from-home and work-from-home trends. A strong recovery in the automotive sector remains a tailwind for the industry players. The growing adoption of software-enabled testing instruments and devices remains another positive. Industry participants like Agilent Technologies ( A Quick Quote A - Free Report) , AMETEK ( AME Quick Quote AME - Free Report) and Fortive ( FTV Quick Quote FTV - Free Report) are well-poised to benefit from the aforesaid factors. Industry Description
The Zacks Electronics – Testing Equipment industry comprises companies that offer advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions.The major end-markets being served by the particular industry are consumer, automobile, industrial, aerospace & defense, healthcare, semiconductors, and communications, to name a few. The industry participants have been continuously making technological advancements in order to gain traction among manufacturers of semiconductors, vehicles, machinery, smartphones and medical devices, who are constantly increasing their spending on electronic components.
3 Trends Shaping the Future of Electronics - Testing Equipment Industry
The rising utilization of precision motion-control solutions and automatic test systems in motion-control devices and testing products, particularly in the aerospace, automation, medical and military markets, is a boon. Commercial motor vehicles will likely continue to bolster the demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings. Notably, one of the prominent players, namely Fortive, benefits from strength across its transportation technologies, which are high in demand on the growing proliferation of commercial vehicles worldwide. Solid Adoption of Motion Control & Test Systems is a Positive: The growing deployment of 5G holds near-term promise for the industry players. An uptick in the demand for 5G test solutions, which are required for 5G deployment, is another major positive. The current coronavirus-triggered work-from-home and learn-from-home waves globally, which have been bolstering the demand for high-speed Internet services, bode well for electronic companies that are enhancing their 5G efforts. The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by strong efforts made toward bolstering the 5G strength. 5G Prospects are Key Catalysts: The industry has been gaining from the increasing use of electrical instruments and software in the interrogation of biological properties of molecules and cells in clinical and medical science research work. The rapid adoption of the solutions is anticipated to drive growth for participants in the pharmaceutical end-market. We note that Agilent is capitalizing on the trend and gaining traction in the life science research space. The pharmaceutical market holds immense prospects, courtesy of the growing utilization of electronic testing equipment. The strengthening of demand for RF test equipment by medical device manufacturers remains another tailwind. Synergies in Pharmaceutical Market are Tailwinds: Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks
Computer and Technology sector. It carries a Zacks Industry Rank #92, which places it in the top 37% 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 solid 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 the 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 Feb 28, 2020, the industry’s earnings estimates for the current year have moved up 5.8%. 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 Lags S&P 500 & Sector
The Zacks Electronics – Testing Equipment Industry has outperformed the Zacks S&P 500 composite but underperformed the broader Zacks Computer and Technology sector in the past year.
The companies in the industry have collectively gained 33.2% compared with the S&P 500 and the Computer and Technology sector’s rally of 37.8% and 46.6%, respectively. One-Year Price Performance Image Source: Zacks Investment Research
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 30X, higher than the S&P 500’s 21.88X and the sector’s 28.06X.
Over the past five years, the industry has traded as high as 31.87X and as low as 18.87X, with a median of 23.38X as the chart below shows. Forward 12-Month Price-to-Earnings (P/E) Ratio
Image Source: Zacks Investment Research 3 Testing Equipment Stocks to Keep a Close Eye on
Agilent: The Palo Alto, CA-based company is gaining from solid momentum across both small and large molecule applications, which is strengthening its presence in the pharmaceutical market. Strength in Cell Analysis, Liquid Chromatography and Mass Spectrometry platforms remains a tailwind. This Zacks Rank #2 (Buy) company, which is an original equipment manufacturer of a broad-based portfolio of test and measurement products serving multiple end markets, is experiencing positive contributions from the acquisition of BioTek Instruments. The solid execution of cross-lab strategy and rising demand for genomics instrumentation and consumables are benefiting the company. Shares of Agilent have soared 57.9% in the past year. The Zacks Consensus Estimate for fiscal 2021 earnings has been revised upward by 1% over the past 60 days to $4.13 per share. Price and Consensus: A Image Source: Zacks Investment Research Fortive: TheEverett, WA-based company is benefiting from strong momentum across Fortive Business System. Solid momentum across the Professional Instrumentation and Industrial Technologies segments has been driving its top-line growth. Robust Gilbarco Veeder-Root and Jacobs Vehicle Systems remain key growth catalysts for the company, which carries a Zacks Rank #2 at present.
Although shares of Fortive, which is a provider of industrial technology and professional instrumentation solutions, have declined 4.5% in the past year; its strong product pipelines and increasing buyouts make it well-poised to gain a strong foothold in the cloud market.
The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has been revised upward by 1.2% over the past 60 days to $2.62 per share. Price and Consensus: FTV Image Source: Zacks Investment Research AMETEK: The Berwyn, PA-based company is gaining from solid contributions from the Gatan and IntelliPower acquisitions, which are driving growth in its Electronic Instruments segment. Benefits from the Pacific Design Technologies buyout are aiding the Electromechanical segment.
The company, which is the manufacturer of electronic appliances and electromechanical devices, remains optimistic about its strong momentum across defense and medical markets. This Zacks Rank #3 (Hold) company’s proper execution of its four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, are expected to continue aiding its finances in the near term.
The stock has jumped 45.7% in the past year. The Zacks Consensus Estimate for the company’s 2021 earnings has been unchanged at $4.56 per share over the past 60 days. Price and Consensus: AME
Image Source: Zacks Investment Research