The Zacks Office Automation and Equipment Industry comprises companies that provide products and services related to printing solutions, healthcare and industrial businesses. The industry participants are located in Japan and the United States.
Here are the three major themes in the industry:
- Companies in the industry are suffering from a slowdown in economic growth due to uncertainty surrounding the outcome of the U.S.-China trade war. The trade tussle has lowered consumer spending and capital investments, which in the end is affecting demand from emerging markets. As the industry players have significant exposure to China and Southeast Asia, a lot depends on the outcome of US-China trade talks, which are expected to resume soon. Brexit-related headwind in the European Union is another concern.
- Soft demand for copiers and office equipment due to increasing adoption of smartphones and portable devices has been detrimental to the industry’s growth. Heavy investments in technology to innovate and customize products specific to client requirements is dragging down margins. Additionally, with product life cycles being short, investments in research and development are increasing. Moreover, commodity prices are likely to rise in the near term on growing demand and concerns over tightening global supplies.
- Increased product offerings from local manufacturers along with their low-cost alternatives are forcing industry participants to slash prices. This is eating into the industry participants’ bottom line. However, growing demand for advanced medical care techniques in both developed and emerging markets is boosting demand. Moreover, extensive use of robotics in industrial automation processes to improve precision and accuracy of products and production lines is resonating well with participants providing services in this area.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Office Automation and Equipment industry is housed within the broader Zacks Computer And Technology sector. It carries a Zacks Industry Rank #230, which places it in the bottom 10% 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 bleak 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 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 on this group’s earnings growth potential. Since Jul 31, 2018, the industry’s earnings estimates for the current year have declined 37%.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P 500 & Sector
The Zacks Office Automation and Equipment industry has underperformed the Zacks S&P 500 composite as well as its own sector in the past year.
The industry has returned 5.9% over this period compared with the Zacks Computer and Technology sector’s rally of 19.7%. The S&P 500 has returned 16.9% in the said time frame.
One Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing Office Automation and Equipment stocks, the industry is currently trading at 17.03X versus the S&P 500’s 16.23X and the sector’s 19.56X.
Over the past five years, the industry has traded as high as 19.81X and as low as 12.32X, recording a median of 15.19X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch Out For
Softness in demand due to the ongoing trade tensions between the United States and China, and Brexit-related headwinds along with intense competition from local players are expected to hurt the industry.
None of the stocks in the industry carries a Zacks Rank #1 (Strong Buy) or Rank 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Here, we present three stocks with a Zacks Rank #3 (Hold) that investors may choose to hold for the time being.
Ricoh Co. (RICOY - Free Report) : Tokyo, Japan-based Ricoh has returned 14% in the past year. The Zacks Consensus Estimate for fiscal 2020 has declined 5.4% to 88 cents per share over the past 30 days.
Price and Consensus: RICOY
Canon, Inc. (CAJ - Free Report) : Tokyo, Japan-based Canon has lost 6.4% in the past year. The Zacks Consensus Estimate for the company’s current-year earnings has increased by a penny to $1.65 over the past 30 days.
Price and Consensus: CAJ
Pitney Bowes Inc. (PBI - Free Report) : This Stamford, CT-based stock has lost 50.7% in the past year. The Zacks Consensus Estimate for the company’s current-year earnings has stayed flat at 93 cents over the past 30 days.
Price and Consensus: PBI