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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 replacing obsolete industrial control systems with state-of-the-art technology.
Disruptions in the supply chain due to the pandemic hurt the process automation and instrumentation market. Nonetheless, Watts Water Technologies, Inc. (WTS - Free Report) , Badger Meter, Inc. (BMI - Free Report) and Allied Motion Technologies, Inc. are well-positioned to benefit from the growing importance of energy efficiency and cost reduction, digitized technologies, adoption of industrial automation and the optimum utilization of resources.
Industry Description
The Zacks Instruments – Control industry comprises manufacturers of precision and specialty motion control components and systems used in a wide range of industries. 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 an array of products for fuel, combustion, fluid, actuation, electronic applications, energy control and optimization, particularly for the process industry. Some industry players 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. Few firms provide water re-use products, consisting of drainage and rainwater harvesting solutions.
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 is expected to drive growth 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 industry’s growth 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, the 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 and growing regulation and compliance will continue to be major growth drivers.
Supply Chain Disruptions Remain a Concern: The industry players are facing significant supply chain challenges, resulting in stretched lead times and higher material costs. The pandemic continues to affect their markets, customers and suppliers. While the companies are focused on improving their operating performance, an inability to obtain adequate supplies of raw materials and product parts at favorable prices could hurt their businesses. Though market uncertainties seem to have eased to some extent, these firms continue to closely monitor supply chain issues and inflation. They remain focused on long-term strategic priorities while addressing lingering near-term disruptions.
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 opportunities for companies to strengthen their market position.
Intense Competition Hurts Profitability: The companies operate in markets susceptible to competitive pressures and are under constant threat by low-cost suppliers, primarily based in China. Any change in prices could result in reduced demand for their products globally. Due to an international footprint, these firms are exposed to foreign exchange fluctuations that could affect their cash flow and profitability. Growth depends on their capability to develop technologically advanced products that meet appropriate industry standards. Changes in competitive conditions, including the availability of the latest products and services, introduction of new channels of distribution and changes in OEM and aftermarket pricing, could hamper their association with clients and affect sales.
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 #49, which places it in the top 20% 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. 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. The industry’s earnings estimates for the current year have increased 3.7% over the past year.
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 Outperforms Sector, Lags S&P 500
The Zacks Instruments – Control industry has outperformed the broader Zacks Computer and Technology sector but lagged the S&P 500 composite in the past year.
The industry has gained 1.5% compared with the S&P 500’s rise of 10.8%. Meanwhile, the sector has declined 1.3%.
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 13.54X compared with the S&P 500’s 13.98X. It is above the sector’s trailing 12-month EV/EBITDA of 12.99X.
Over the past five years, the industry has traded as high as 17.46X, as low as 6.72X, with a median of 11.62X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Instruments Control Stocks to Watch
Watts Water Technologies: Headquartered in North Andover, MA, Watts Water provides one of the broadest plumbing, heating and water quality product lines globally. The company is focused on enhancing organic growth, driving margin expansion and reinvesting in productivity initiatives. It benefits from aggressive cost reduction actions and a strong balance sheet. The Zacks Consensus Estimate for its current-year earnings has been revised 1% upward over the past 30 days. The stock has gained 24.8% in the past year. It currently carries a Zacks Rank #2 (Buy).
Price and Consensus: WTS
Badger Meter: Headquartered in Milwaukee, WI, Badger Meter provides industry-leading water solutions, including flow measurement, quality and other system parameters. The company is focused on investing in digital solutions that operationalize real-time data into actionable insights. It benefits from strong water quality acquisition-related sales, backlog conversion and record order momentum across its diverse portfolio of innovative water solutions. The consensus estimate for current-year earnings has been revised 9.5% upward over the past 30 days. The stock has, however, lost 9.5% in the past year. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BMI
Allied Motion Technologies: Headquartered in Amherst, NY, Allied Motion manufactures precision and specialty controlled motion products and solutions for the global market. The company is known for its expertise in electro-magnetic, mechanical and electronic motion technology. Its major served markets include Vehicle, Medical, Aerospace and Defense and Industrial. The company is focused on being the controlled motion solutions leader in target markets by leveraging its technology to develop integrated precision solutions. The consensus estimate for current-year earnings has been stable over the past 30 days. The stock has inched up 2.2% in the past year. It flaunts a Zacks Rank #1.
Price and Consensus: AMOT
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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 replacing obsolete industrial control systems with state-of-the-art technology.
Disruptions in the supply chain due to the pandemic hurt the process automation and instrumentation market. Nonetheless, Watts Water Technologies, Inc. (WTS - Free Report) , Badger Meter, Inc. (BMI - Free Report) and Allied Motion Technologies, Inc. are well-positioned to benefit from the growing importance of energy efficiency and cost reduction, digitized technologies, adoption of industrial automation and the optimum utilization of resources.
Industry Description
The Zacks Instruments – Control industry comprises manufacturers of precision and specialty motion control components and systems used in a wide range of industries. 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 an array of products for fuel, combustion, fluid, actuation, electronic applications, energy control and optimization, particularly for the process industry. Some industry players 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. Few firms provide water re-use products, consisting of drainage and rainwater harvesting solutions.
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 is expected to drive growth 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 industry’s growth 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, the 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 and growing regulation and compliance will continue to be major growth drivers.
Supply Chain Disruptions Remain a Concern: The industry players are facing significant supply chain challenges, resulting in stretched lead times and higher material costs. The pandemic continues to affect their markets, customers and suppliers. While the companies are focused on improving their operating performance, an inability to obtain adequate supplies of raw materials and product parts at favorable prices could hurt their businesses. Though market uncertainties seem to have eased to some extent, these firms continue to closely monitor supply chain issues and inflation. They remain focused on long-term strategic priorities while addressing lingering near-term disruptions.
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 opportunities for companies to strengthen their market position.
Intense Competition Hurts Profitability: The companies operate in markets susceptible to competitive pressures and are under constant threat by low-cost suppliers, primarily based in China. Any change in prices could result in reduced demand for their products globally. Due to an international footprint, these firms are exposed to foreign exchange fluctuations that could affect their cash flow and profitability. Growth depends on their capability to develop technologically advanced products that meet appropriate industry standards. Changes in competitive conditions, including the availability of the latest products and services, introduction of new channels of distribution and changes in OEM and aftermarket pricing, could hamper their association with clients and affect sales.
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 #49, which places it in the top 20% 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. 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. The industry’s earnings estimates for the current year have increased 3.7% over the past year.
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 Outperforms Sector, Lags S&P 500
The Zacks Instruments – Control industry has outperformed the broader Zacks Computer and Technology sector but lagged the S&P 500 composite in the past year.
The industry has gained 1.5% compared with the S&P 500’s rise of 10.8%. Meanwhile, the sector has declined 1.3%.
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 13.54X compared with the S&P 500’s 13.98X. It is above the sector’s trailing 12-month EV/EBITDA of 12.99X.
Over the past five years, the industry has traded as high as 17.46X, as low as 6.72X, with a median of 11.62X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Instruments Control Stocks to Watch
Watts Water Technologies: Headquartered in North Andover, MA, Watts Water provides one of the broadest plumbing, heating and water quality product lines globally. The company is focused on enhancing organic growth, driving margin expansion and reinvesting in productivity initiatives. It benefits from aggressive cost reduction actions and a strong balance sheet. The Zacks Consensus Estimate for its current-year earnings has been revised 1% upward over the past 30 days. The stock has gained 24.8% in the past year. It currently carries a Zacks Rank #2 (Buy).
Price and Consensus: WTS
Badger Meter: Headquartered in Milwaukee, WI, Badger Meter provides industry-leading water solutions, including flow measurement, quality and other system parameters. The company is focused on investing in digital solutions that operationalize real-time data into actionable insights. It benefits from strong water quality acquisition-related sales, backlog conversion and record order momentum across its diverse portfolio of innovative water solutions. The consensus estimate for current-year earnings has been revised 9.5% upward over the past 30 days. The stock has, however, lost 9.5% in the past year. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BMI
Allied Motion Technologies: Headquartered in Amherst, NY, Allied Motion manufactures precision and specialty controlled motion products and solutions for the global market. The company is known for its expertise in electro-magnetic, mechanical and electronic motion technology. Its major served markets include Vehicle, Medical, Aerospace and Defense and Industrial. The company is focused on being the controlled motion solutions leader in target markets by leveraging its technology to develop integrated precision solutions. The consensus estimate for current-year earnings has been stable over the past 30 days. The stock has inched up 2.2% in the past year. It flaunts a Zacks Rank #1.
Price and Consensus: AMOT