The Zacks Instruments - Scientific industry comprises companies offering scientific instruments, analytical tools, diagnostic solutions, precision instruments & services, and test & sensor solutions.
The primary end-markets served by the industry participants are life science research in academia, medical schools and government, pharmaceuticals and biotechnology, microbiology and diagnostics, nanotechnology and materials science research. A few companies also serve food and nutritional safety, biochemical, and industrial space.
Most of the industry participants are under heavy regulatory scrutiny globally. They have to adhere to the U.S. Food and Drug Administration (FDA) norms as well as rules set by other global regulatory bodies as they serve the highly regulated end-markets like life sciences and pharma.
Here are the three major themes in the industry:
- The industry is benefiting from strong end-market demand, particularly from life science, pharmaceutical and academic markets. Increasing demand for generic drugs and biosimilars is driving growth for the scientific tool and apparatus providers. Additionally, pharma companies are focusing on rapidly growing areas like proteomics and phenomics, biopharma and applied, microbiology and diagnostics, and neuroscience and cell microscopy, which present significant growth opportunity for the instruments provided by industry participants.
- Socioeconomic factors like aging demography and increasing environmental regulations are driving demand for scientific measurement solutions. Moreover, robust worldwide healthcare spending is a major growth driver. The $2-billion increase in the National Institute of Health (NIH) budget for fiscal 2019 also bodes well for this industry.
- Further, the industry is gaining from increasing exposure to developing economies like China and India. The growth prospect in China is huge as regulators are attempting to upgrade the country’s biopharma industry to global standards. Moreover, efforts to improve drug development process and production quality in the country are noteworthy. These factors are resulting in strong demand for instruments in the country. However, the ongoing trade war between the United States and China is negatively impacting some of the industry participants.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Instruments - Scientific industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #70, which places it at the top 27% of 256 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 positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has increased by 1.9%.
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 on Shareholder Returns
The Zacks Instruments – Scientific industry has lagged the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 3.7% over this period compared to the S&P 500’s rise of 2.1% and broader sector’s decline of 2.7%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing scientific instrument stocks, we see that the industry is currently trading at 20.69X compared with the S&P 500’s 16.09X. It is also compares to the sector’s forward-12-month P/E of 18.13X.
Over the last five years, the industry has traded as high as 25.85X, as low as 17.33X and at the median of 20.63X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Strong growth prospects in emerging markets, increasing spending on health care driven by an aging demography and continued innovation in the pharma and life sciences end-market are the key catalysts for this industry.
Currently, none of the stocks in the Zacks Instruments – Scientific industry flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, we are presenting a stock with a Zacks Rank #2 (Buy) that is well-positioned to grow. Moreover, there are a couple of stocks that investors may currently hold on to.
Bruker Corporation (BRKR - Free Report) - Billerica, MA-based Bruker carries a Zacks Rank #2. The stock has lost 5% over the past year. The Zacks Consensus Estimate for the company’s current-year EPS has increased 1.4% to $1.40 over the last 30 days.
Price and Consensus: BRKR
Waters Corporation (WAT - Free Report) - Milford, MA-based Waters carries a Zacks Rank #3 (Hold). The stock has returned 2.7% over the past year. The consensus EPS estimate for the company has remained steady at $8.05 for the current year over the last 30 days.
Price and Consensus: WAT
Mettler-Toledo International (MTD - Free Report) - Headquartered in Polaris Parkway, Columbus, the weighing instruments provider also has a Zacks Rank #3. Its shares have retruned 1% over the past year. Moreover, the consensus EPS estimate for the company inched up 0.2% to $20.23 for the current year over the last 30 days.
Price and Consensus: MTD
3 Medical Stocks to Buy Now
The greatest discovery in this century of biology is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating revenue, and cures for a variety of deadly diseases are in the pipeline.
So are big potential profits for early investors. Zacks has released an updated Special Report that explains this breakthrough and names the best 3 stocks to ride it.
See them today for free >>