Electronics - Manufacturing Machinery industry is expected to benefit from increased capital spending on high-performance computing, advanced packaging and memory by semiconductor manufacturers. The rising need for data center, notebooks (due to coronavirus-induced remote working and learning) and gaming (pandemic-induced demand) are driving memory demand. Entegris ( ENTG Quick Quote ENTG - Free Report) , Brooks Automation and Nikon ( NINOY Quick Quote NINOY - 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, healthcare solutions and 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. The consistent shift to smaller dimensions and the rapid adoption of new device architecture 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, the emergence of techniques like wafer level packaging 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 the 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 the growing demand for edge computing are the key catalysts. However, U.S.-China trade tensions and the impact of coronavirus on consumer appetite for next-gen smartphones and digital cameras are some notable headwinds. Complex Process Driving Demand: The improving demand for 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. Strong demand for chip and higher spending on semiconductor capital equipment is aiding industry participants. 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 #59, which places it in the top 24% 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 54.9% over this period compared with the S&P 500’s rally of 27.7% and the broader sector’s increase of 30.2%. 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 14.69X compared with the S&P 500’s 15.38X. It is also above the sector’s trailing-12-month EV/EBITDA of 14.92X.
Over the last five years, the industry has traded as high as 19.14X, as low as 5.51X and at the median of 12.54X, as the chart below shows. EV/EBITDA Ratio (TTM)
3 Electronics Stocks to Buy Right Now
Nikon: This Zacks Rank #1 (Strong Buy) company’s enviable high-end camera portfolio, including mirrorless products, is a growth driver. Capital investments for mid-to-small size panels remain on a recovery trend and capital investments for large-size panels remain steady, boding well for Nikon. Healthcare has emerged as major cash cow for Nikon. It plans to focus on drug discovery services, genetic analysis and contract cell manufacturing apart from equipment sales, to drive growth. Contracts business is also expected to gain from solid demand for EUV-related components. The Zacks Consensus Estimate for its 2021 earnings has risen 27.5% to 62 cents per share over the past 60 days. Price and Consensus: NINOY
Brooks Automation: This Chelmsford, MA-based company is benefiting from robust growth in its life sciences business driven by COVID-19-led demand. This global provider of life science sample-based services and solutions has significantly expanded its life science clientele in recent times. The pending sales of the Semiconductor Solutions Group (automation) segment to Thomas H. Lee partners for $3 billion in cash ($2.4 billion net cash) will boost this Zacks Rank #2 (Buy) company’s liquidity position that will help it to pursue growth opportunities in the life sciences space. The Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 3.6% to $2.58 per share over the past 60 days. Price and Consensus: BRKS
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 the 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. The company is benefiting from strong chip demand globally. The consensus mark for its current-year earnings stayed at $3.32 per share over the past 60 days. Price and Consensus: ENTG