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The Zacks Laser Systems and Components industry is suffering from pandemic-induced supply chain disruptions, including parts and labor shortages, delays in ocean freight and port congestion. The demand-supply mismatch is expected to persist in the near term, thereby hurting prospects of the industry participants. Nevertheless, upbeat demand from electronics, semiconductors and healthcare end-markets is a major growth driver. Lumentum (LITE - Free Report) and IPG Photonics (IPGP - Free Report) are well-positioned to benefit from these trends. Robust demand for high-power continuous wave and pulsed laser for cutting and battery processing applications, growing demand for high-performance optical devices, and ongoing adoption of cloud computing, autonomous driving, IoT and 5G are key catalysts for these industry participants.
Industry Description
The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, optical and photonic products, and scanning technology solutions. The key end markets are semiconductor, metrology, advanced communication and medical devices. Industry participants also provide high-precision 3D sensors and system products for inspection and metrology. Moreover, in the medical devices space, laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. The development of safe and effective aesthetic treatments has resulted in a well-established market for these procedures. The company also operates in the cyclical surface mount technology (SMT) and semiconductor capital equipment markets.
3 Laser Systems & Components Industry Trends to Watch Out For
Emerging Applications Driving Demand for Lasers: The industry is benefiting from increasing demand for emerging applications like additive manufacturing, facial recognition, gesture recognition, LiDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. Notably, 3DS, the technology that allows users to create 3D printable objects, control games with body gestures and measure objects, is much in demand.
Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. Notably, IoT-supported manufacturing equipment is far easier to update with firmware. The combination not only reduces costs but also increases flexibility and reliability manifold by enabling material handling capabilities through remote sources. Additionally, strong demand from semiconductor and allied markets, which are seeing a rapid shift toward the production of micro and nano devices, is a positive for industry participants.
Supply-Chain Disruption Hurts Prospect: Industry participants are suffering from pandemic-induced supply chain disruptions. Parts and labor shortages as well as delays in ocean freight and port congestion are hurting their ability to address customer needs. The demand-supply mismatch is expected to persist in the near term thereby hurting prospects of the industry participants.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #183, which places it in the bottom 27% 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 dim 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 two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Jun 30, 2021, the Zacks Consensus Estimate for the industry’s earnings for the current year has declined 60.5%.
Despite the gloomy outlook, there are a couple of stocks worth watching in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Underperforms Broader Sector and S&P 500
The Zacks Laser Systems and Components industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 38.1% over this period against the S&P 500’s fall of 23.2% and the broader sector’s decline of 32.3%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 6.11X compared with the S&P 500’s 3.39X. It is also trading above the sector’s trailing 12-month P/S of 3.67X.
Over the last five years, the industry has traded as high as 10.80X, as low as 5.90X and at the median of 8.77X, as the chart below shows:
Trailing 12-Month Price-to-Sales (P/S) Ratio
2 Laser Stocks to Keep a Close Eye on
Lumentum: This San Jose, CA-based company is a well-known provider of optical and photonic products addressing a range of end-market applications, including Optical Communications and Commercial Lasers for manufacturing, inspection and life-science applications.
Lumentum is benefiting from strong customer demand for its communications products, which are essential for multi-year expansions in next-generation optical network capacity that are just beginning to be deployed. Expanding usage of high-performance lasers for 3D sensing and LiDAR is driving growth.
The Zacks Consensus Estimate for Lumentum’s fiscal 2022 earnings has been steady at $5.93 per share over the past month.
Price & Consensus: LITE
IPG Photonics: Oxford, MA-based IPG Photonics develops and manufactures fiber & diode lasers, fiber amplifiers and transceivers that are used for diverse applications like materials processing, advanced applications, communications and medical. The stock has declined 1% in the past year.
IPG Photonics is riding on strong demand for its core material processing product. The company is benefiting from accelerated growth in welding, marking and 3D printing in North America, Europe and Japan. Strong demand for AMB lasers is driving IPG’s growth, particularly from electric vehicle battery manufacturers.
The consensus mark for IPG’s fiscal 2022 earnings has been steady at $4.71 per share over the past 30 days. IPG Photonics currently has a Zacks Rank #3 (Hold).
Price & Consensus: IPGP
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2 Laser Stocks to Watch in a Challenging Industry
The Zacks Laser Systems and Components industry is suffering from pandemic-induced supply chain disruptions, including parts and labor shortages, delays in ocean freight and port congestion. The demand-supply mismatch is expected to persist in the near term, thereby hurting prospects of the industry participants. Nevertheless, upbeat demand from electronics, semiconductors and healthcare end-markets is a major growth driver. Lumentum (LITE - Free Report) and IPG Photonics (IPGP - Free Report) are well-positioned to benefit from these trends. Robust demand for high-power continuous wave and pulsed laser for cutting and battery processing applications, growing demand for high-performance optical devices, and ongoing adoption of cloud computing, autonomous driving, IoT and 5G are key catalysts for these industry participants.
Industry Description
The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, optical and photonic products, and scanning technology solutions. The key end markets are semiconductor, metrology, advanced communication and medical devices. Industry participants also provide high-precision 3D sensors and system products for inspection and metrology. Moreover, in the medical devices space, laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. The development of safe and effective aesthetic treatments has resulted in a well-established market for these procedures. The company also operates in the cyclical surface mount technology (SMT) and semiconductor capital equipment markets.
3 Laser Systems & Components Industry Trends to Watch Out For
Emerging Applications Driving Demand for Lasers: The industry is benefiting from increasing demand for emerging applications like additive manufacturing, facial recognition, gesture recognition, LiDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. Notably, 3DS, the technology that allows users to create 3D printable objects, control games with body gestures and measure objects, is much in demand.
Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. Notably, IoT-supported manufacturing equipment is far easier to update with firmware. The combination not only reduces costs but also increases flexibility and reliability manifold by enabling material handling capabilities through remote sources. Additionally, strong demand from semiconductor and allied markets, which are seeing a rapid shift toward the production of micro and nano devices, is a positive for industry participants.
Supply-Chain Disruption Hurts Prospect: Industry participants are suffering from pandemic-induced supply chain disruptions. Parts and labor shortages as well as delays in ocean freight and port congestion are hurting their ability to address customer needs. The demand-supply mismatch is expected to persist in the near term thereby hurting prospects of the industry participants.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #183, which places it in the bottom 27% 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 dim 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 two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Jun 30, 2021, the Zacks Consensus Estimate for the industry’s earnings for the current year has declined 60.5%.
Despite the gloomy outlook, there are a couple of stocks worth watching in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Underperforms Broader Sector and S&P 500
The Zacks Laser Systems and Components industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 38.1% over this period against the S&P 500’s fall of 23.2% and the broader sector’s decline of 32.3%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 6.11X compared with the S&P 500’s 3.39X. It is also trading above the sector’s trailing 12-month P/S of 3.67X.
Over the last five years, the industry has traded as high as 10.80X, as low as 5.90X and at the median of 8.77X, as the chart below shows:
Trailing 12-Month Price-to-Sales (P/S) Ratio
2 Laser Stocks to Keep a Close Eye on
Lumentum: This San Jose, CA-based company is a well-known provider of optical and photonic products addressing a range of end-market applications, including Optical Communications and Commercial Lasers for manufacturing, inspection and life-science applications.
Lumentum is benefiting from strong customer demand for its communications products, which are essential for multi-year expansions in next-generation optical network capacity that are just beginning to be deployed. Expanding usage of high-performance lasers for 3D sensing and LiDAR is driving growth.
Lumentum currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Lumentum’s fiscal 2022 earnings has been steady at $5.93 per share over the past month.
Price & Consensus: LITE
IPG Photonics: Oxford, MA-based IPG Photonics develops and manufactures fiber & diode lasers, fiber amplifiers and transceivers that are used for diverse applications like materials processing, advanced applications, communications and medical. The stock has declined 1% in the past year.
IPG Photonics is riding on strong demand for its core material processing product. The company is benefiting from accelerated growth in welding, marking and 3D printing in North America, Europe and Japan. Strong demand for AMB lasers is driving IPG’s growth, particularly from electric vehicle battery manufacturers.
The consensus mark for IPG’s fiscal 2022 earnings has been steady at $4.71 per share over the past 30 days. IPG Photonics currently has a Zacks Rank #3 (Hold).
Price & Consensus: IPGP
