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The Zacks Laser Systems and Components industry suffers from the pandemic-induced supply-chain disruptions, including parts and labor shortages. A strong U.S. dollar, and raging inflation, weak economic conditions in Europe and lockdowns in China are major headwinds. The demand-supply mismatch is expected to persist in the near term, hurting the prospects of industry participants. Nevertheless, upbeat demand from electronics, semiconductors and healthcare end-markets is a major growth driver. IPG Photonics (IPGP - Free Report) and Lumentum (LITE - 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 the ongoing adoption of cloud computing, autonomous driving, IoT and 5G are the key catalysts for 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 semiconductors, 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. Developing 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 and semiconductor capital equipment markets.
3 Laser Systems & Components Industry Trends to Watch
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 in demand.
Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. IoT-supported manufacturing equipment is far easier to update with firmware. The combination reduces costs, and increases the flexibility and reliability manifold by enabling material-handling capabilities through remote sources. Strong demand from semiconductor and allied markets, which are seeing a rapid shift toward the production of micro and nano devices, is another positive for industry participants.
Supply-Chain Disruption Hurts Prospect: Industry participants suffer from the pandemic-induced supply-chain disruptions. The demand-supply mismatch is expected to persist in the near term, hurting the prospects of the industry participants. Moreover, raging inflation, a strong U.S. dollar, energy headwinds in Europe and COVID-related lockdowns in China are expected to hurt industry participants in the near term.
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 #184, which places it in the bottom 26% 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 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries results from the 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 Mar 31, 2022, the Zacks Consensus Estimate for the industry’s earnings for 2023 has declined a whopping 29.8%.
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 28.5% over this period against the S&P 500’s fall of 12.1% and the broader sector’s slip of 18.7%.
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 5.71X compared with the S&P 500’s 3.54X. It is also trading above the sector’s trailing 12-month P/S of 3.72X.
Over the last five years, the industry has traded as high as 12.64X, as low as 3.19X and at the median of 6.24X, as the chart below shows:
Trailing 12-Month Price-to-Sales (P/S) Ratio
2 Laser Stocks to Keep a Close Eye on
IPG Photonics: Oxford, MA-based IPG Photonics develops and manufactures fiber and diode lasers, fiber amplifiers, and transceivers for diverse applications like materials processing, advanced applications, communications and medical. The stock has declined 6.7% in the past year.
IPG Photonics is riding on strong demand for its core material processing product. It is benefiting from accelerated growth in welding, marking, and 3D printing in North America and Japan. Strong demand for AMB lasers and high-power pulse lasers is driving IPG’s growth, particularly from electric vehicle battery manufacturers. The company is benefiting from improving demand for solar cell manufacturing applications.
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.
LITE shares have declined 46.8% in the past year. The consensus mark for this Zacks Rank #3 company’s 2023 earnings has been unchanged at $5.33 per share over the past 30 days.
Price & Consensus: LITE
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2 Laser Stocks to Watch in a Challenging Industry
The Zacks Laser Systems and Components industry suffers from the pandemic-induced supply-chain disruptions, including parts and labor shortages. A strong U.S. dollar, and raging inflation, weak economic conditions in Europe and lockdowns in China are major headwinds. The demand-supply mismatch is expected to persist in the near term, hurting the prospects of industry participants. Nevertheless, upbeat demand from electronics, semiconductors and healthcare end-markets is a major growth driver. IPG Photonics (IPGP - Free Report) and Lumentum (LITE - 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 the ongoing adoption of cloud computing, autonomous driving, IoT and 5G are the key catalysts for 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 semiconductors, 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. Developing 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 and semiconductor capital equipment markets.
3 Laser Systems & Components Industry Trends to Watch
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 in demand.
Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. IoT-supported manufacturing equipment is far easier to update with firmware. The combination reduces costs, and increases the flexibility and reliability manifold by enabling material-handling capabilities through remote sources. Strong demand from semiconductor and allied markets, which are seeing a rapid shift toward the production of micro and nano devices, is another positive for industry participants.
Supply-Chain Disruption Hurts Prospect: Industry participants suffer from the pandemic-induced supply-chain disruptions. The demand-supply mismatch is expected to persist in the near term, hurting the prospects of the industry participants. Moreover, raging inflation, a strong U.S. dollar, energy headwinds in Europe and COVID-related lockdowns in China are expected to hurt industry participants in the near term.
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 #184, which places it in the bottom 26% 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 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries results from the 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 Mar 31, 2022, the Zacks Consensus Estimate for the industry’s earnings for 2023 has declined a whopping 29.8%.
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 28.5% over this period against the S&P 500’s fall of 12.1% and the broader sector’s slip of 18.7%.
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 5.71X compared with the S&P 500’s 3.54X. It is also trading above the sector’s trailing 12-month P/S of 3.72X.
Over the last five years, the industry has traded as high as 12.64X, as low as 3.19X and at the median of 6.24X, as the chart below shows:
Trailing 12-Month Price-to-Sales (P/S) Ratio
2 Laser Stocks to Keep a Close Eye on
IPG Photonics: Oxford, MA-based IPG Photonics develops and manufactures fiber and diode lasers, fiber amplifiers, and transceivers for diverse applications like materials processing, advanced applications, communications and medical. The stock has declined 6.7% in the past year.
IPG Photonics is riding on strong demand for its core material processing product. It is benefiting from accelerated growth in welding, marking, and 3D printing in North America and Japan. Strong demand for AMB lasers and high-power pulse lasers is driving IPG’s growth, particularly from electric vehicle battery manufacturers. The company is benefiting from improving demand for solar cell manufacturing applications.
The Zacks Consensus Estimate for IPGP’s 2023 earnings has been unchanged at $4.75 per share in the past 30 days. IPG Photonics currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: IPGP
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.
LITE shares have declined 46.8% in the past year. The consensus mark for this Zacks Rank #3 company’s 2023 earnings has been unchanged at $5.33 per share over the past 30 days.
Price & Consensus: LITE
