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Electronics Testing Equipment Industry Outlook Appears Bright

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The Zacks Electronics -Testing Equipment Industry comprises companies that offer advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions.

The emergence of software-enabled testing instruments and devices is benefiting the industry significantly. In fact, the digital wave has led to increasing usage of electronic devices in almost every major sector — consumer, automobile, industrial, aerospace & defense, healthcare, semiconductors and communications.

Here are the three major themes in the industry:

  • Rising utilization of precision motion control solutions and automatic test systems in motion control devices and testing products, particularly in the aerospace, automation, medical and military end-markets, is a major positive. Further, rapid adoption of wireless test solutions is spurring growth. Additionally, commercial motor vehicles will continue to bolster demand for vehicle tracking systems, fleet management solutions and other private fleet applications which are part of the industry’s key offerings.
     
  • The industry is benefiting from increasing usage of electrical instruments and software in the interrogation of biological properties of molecules and cells in clinical and medical science research work. Rapid adoption of these solutions is anticipated to drive growth for industry participants in the healthcare end-market. Additionally, medical devices and pharmaceutical markets hold immense growth opportunities, thanks to growing utilization of electronic equipment. Moreover, strengthening demand for RF test equipment by medical device manufacturers is a tailwind.
     
  • The rapid adoption of IoT technology and emergence of 5G technology presents solid growth opportunities for the industry participants. Moreover, the industry is expected to remain on growth trajectory backed by strong efforts made toward the ongoing modification of the Internet infrastructure, IoT-supported industrial automation and evolution of smart cars & autonomous vehicle. Further, the industry will gain from robust demand for collaborative robots which add efficiency to the production process by assisting human workers.


Zacks Industry Rank Indicates Bright Prospects

The Zacks Electronics - Testing Equipment industry housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #51, which places it at the top 20% 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 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.

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 S&P 500 & Sector

The Zacks Electronics – Testing Equipment Industry outperformed the Zacks S&P 500 composite as well as its own sector in the past year.

The stocks in this industry have collectively increased 3.4% compared with the Zacks S&P 500’s growth of 2.7%. Meanwhile, the Zacks Computer and Technology sector’s declined 2.8%.

One Year Price Performance



 

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing Electronics – Testing Equipment stocks, the industry is currently trading at 21.38X, higher than the S&P 500’s 16.67X and the sector’s 19.06X.

Over the past five years, the industry has traded as high as 26.26X and as low as 18.30X, with the median being at 21.62X, as the charts below show.

Forward 12-Month Price-to-Earnings (P/E) Ratio



Bottom Line

We believe the near-term growth prospects of this industry are bright driven by continuous spending by manufacturers of semiconductors, automobiles, machineries, smartphones and medical devices.

Below are three stocks carrying a Zacks Rank #2 (Buy) that investors may take a look at.

AMETEK, Inc. (AME - Free Report) based in Berwyn, PA, manufactures electronic appliances and electromechanical devices. The company has an average positive earnings surprise of 4.25% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: AME



Teradyne, Inc. (TER - Free Report) based in North Reading, MA, is a leading provider of automated test equipment. It also offers specialized system testing equipment. Notably, the company has an average positive earnings surprise of 20.46% in the trailing four quarters.

Price and Consensus: TER



Itron, Inc. (ITRI - Free Report) headquartered in Liberty Lake, WA, is the global supplier of standard, advanced, and smart meters and meter communication systems. It also offers networks and communication modules, software, devices, sensors, data analytics and services. Notably, the company has an average positive earnings surprise of 30.81% in the trailing four quarters.

Price and Consensus: ITRI



The stock below carries a Zacks Rank #3 (Hold) from the same space that investors can retain for the moment.

Agilent Technologies, Inc. (A - Free Report) based in Palo Alto, CA, is an original equipment manufacturer of a broad-based portfolio of test and measurement products serving multiple end markets. The company has an average positive earnings surprise of 5.01% in the trailing three quarters.

Price and Consensus: A

 

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See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Itron, Inc. (ITRI) - free report >>

Agilent Technologies, Inc. (A) - free report >>

AMETEK, Inc. (AME) - free report >>

Teradyne, Inc. (TER) - free report >>

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