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The Zacks Electronics – Miscellaneous Products industry is benefiting from the rise in semiconductor capital expenditure despite the negative impact of the pandemic-induced supply-chain constraints. High demand for semiconductor chips is expected to keep the supply chain under pressure, thereby driving the average selling price.
Increasing spending on advanced technologies bodes well for industry participants like Carrier Global, Garmin and KLA. Continuing investments in data-center, high-performance computing (HPC) and 5G end-markets are key catalysts. Fab (foundry) expansion in the United States, South Korea, Taiwan and China as well as higher spending on memory equipment is expected to drive growth in 2022 and beyond.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers (OEMs) of air-conditioning systems, remote control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor applications and energy management solutions. The industry is evolving on digital transformation and growing demand for silicon across multiple markets.
The increasing cost of manufacturing bodes well for equipment suppliers while the growing demand for silicon is a positive for semiconductor companies. Apart from the United States, companies in this industry are domiciled in Japan, Germany, the Netherlands and Switzerland. These companies either have manufacturing operations in China and South-East Asia or generate significant revenues from the regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Increasing capital expenditure by semiconductor companies is expected to improve further in 2022 and beyond, driven by investments in infrastructure as well as expanded capacity. Since semiconductor companies are major customers of the miscellaneous electronics product manufacturers, this trend bodes well for industry participants.
In addition, rising spending on advanced nodes — 7 nm, 5 nm and 3 nm processes from logic and foundry customers — bodes well for industry participants. In fact, logic and foundry spending is anticipated to remain healthy this year. Although data-center, HPC and 5G-related infrastructure demand is encouraging, downbeat business sentiments due to COVID-19 can affect spending in the near term.
Coronavirus Pandemic Remains a Headwind: Industry participants are bearing the brunt of the coronavirus-induced challenging macro-economic environment. The pandemic-related uncertainties have disrupted end-market demand (automotive, IoT). Moreover, supply chain headwinds are a major challenge for industry participants in the near term.
Volatility in Commodity Prices is a Concern: OEMs are exposed to volatility in the prices of commodities like copper and steel. The coronavirus pandemic is negatively impacting commodity markets due to a sharp slowdown in global manufacturing activity despite the unprecedented stimulus measures taken to buoy demand. Apart from this, industry participants are expected to face headwinds due to the U.S. ban on Huawei and HiSilicon.
Zacks Industry Rank
The Zacks Electronics – Miscellaneous Products industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #148, which places it in the bottom 41% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates continued underperformance in the days to come.
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 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 Jun 30, 2021, the industry's earnings estimate for the current year has moved down 25.2%.
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 S&P 500 & Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 Index and the Computer & Technology sector in the past year.
The industry has declined 33.4% during this period against the S&P 500 composite's appreciation of 14.4% and the broader sector's rally of 24.9%.
Industry's Current Valuation
On the basis of the forward 12-month P/E, which is a commonly used multiple for valuing electronics-miscellaneous products companies, we see that the industry is currently trading at 14.02X compared with the S&P 500's 17.57X and the sector's forward-12-month P/E of 25.81X.
Over the last five years, the industry has traded as high as 19.58X, as low as 9.92X and at the median of 14.75.
Stocks to Watch
Carrier Global: Palm Beach Gardens, FL-based Carrier Global is benefiting from solid momentum across its HVAC business. Growing demand for the company's robust healthy, safe, sustainable & intelligent building and cold chain solutions remains positive.
Increasing adoption of interconnected smoke detectors remains another positive factor. Further, well-performing Abound continues to drive top-line growth. Carrier Global is witnessing key wins in system-level solutions including hardware, controls and aftermarket, which remains a tailwind.
Carrier Global shares have been down 27.1% on a year-to-date basis. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company's fiscal-year 2022 earnings has been revised by a penny downward to $2.29 over the past 30 days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
KLA Corp.: This Zacks Rank #3 company benefits from increased customer demand across each major product group — defect inspection and metrology.
KLA is benefiting from increased customer demand across each of the major product group. Further, growing investments across multiple nodes and rising capital intensity in Foundry & logic are contributing well to the top-line growth. Increasing customer adoption of metrology applications in leading-edge technology development and capacity monitoring are constantly propelling the optical metrology business, which remains a positive factor.
KLA's shares have declined 15.7% year to date. The Zacks Consensus Estimate for KLAC's fiscal 2022 earnings has moved down by a penny to $20.90 per share over the past 30 days.
Garmin– This Zacks Rank #3 is benefiting from solid momentum in the outdoor segment owing to growing demand for adventure watches. Furthermore, a well-performing marine segment, courtesy of robust chartplotters, remains a major positive. The solid adoption of advanced sonars is also contributing well.
Additionally, strong momentum across specialty categories and new OEM programs is a positive for Garmin. Also, growing auto and aviation segments are benefiting the top line. We note that Garmin's strong focus on continued innovation, diversification and market expansion to explore growth opportunities in all its segments remains a tailwind.
Garmin's shares are down 23.2% year to date. The Zacks Consensus Estimate for GRMN's current-year earnings has moved down by a penny to $5.90 per share in 30 days' time.
Why Haven't You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Carrier Global, Garmin, and KLA
For Immediate Release
Chicago, IL – June 8, 2022 – Today, Zacks Equity Research discusses like Carrier Global (CARR - Free Report) , Garmin (GRMN - Free Report) and KLA (KLAC - Free Report) .
Industry: Electronics
Link: https://www.zacks.com/commentary/1935535/3-electronics-stocks-to-watch-from-a-challenging-industry
The Zacks Electronics – Miscellaneous Products industry is benefiting from the rise in semiconductor capital expenditure despite the negative impact of the pandemic-induced supply-chain constraints. High demand for semiconductor chips is expected to keep the supply chain under pressure, thereby driving the average selling price.
Increasing spending on advanced technologies bodes well for industry participants like Carrier Global, Garmin and KLA. Continuing investments in data-center, high-performance computing (HPC) and 5G end-markets are key catalysts. Fab (foundry) expansion in the United States, South Korea, Taiwan and China as well as higher spending on memory equipment is expected to drive growth in 2022 and beyond.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers (OEMs) of air-conditioning systems, remote control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor applications and energy management solutions. The industry is evolving on digital transformation and growing demand for silicon across multiple markets.
The increasing cost of manufacturing bodes well for equipment suppliers while the growing demand for silicon is a positive for semiconductor companies. Apart from the United States, companies in this industry are domiciled in Japan, Germany, the Netherlands and Switzerland. These companies either have manufacturing operations in China and South-East Asia or generate significant revenues from the regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Increasing capital expenditure by semiconductor companies is expected to improve further in 2022 and beyond, driven by investments in infrastructure as well as expanded capacity. Since semiconductor companies are major customers of the miscellaneous electronics product manufacturers, this trend bodes well for industry participants.
In addition, rising spending on advanced nodes — 7 nm, 5 nm and 3 nm processes from logic and foundry customers — bodes well for industry participants. In fact, logic and foundry spending is anticipated to remain healthy this year. Although data-center, HPC and 5G-related infrastructure demand is encouraging, downbeat business sentiments due to COVID-19 can affect spending in the near term.
Coronavirus Pandemic Remains a Headwind: Industry participants are bearing the brunt of the coronavirus-induced challenging macro-economic environment. The pandemic-related uncertainties have disrupted end-market demand (automotive, IoT). Moreover, supply chain headwinds are a major challenge for industry participants in the near term.
Volatility in Commodity Prices is a Concern: OEMs are exposed to volatility in the prices of commodities like copper and steel. The coronavirus pandemic is negatively impacting commodity markets due to a sharp slowdown in global manufacturing activity despite the unprecedented stimulus measures taken to buoy demand. Apart from this, industry participants are expected to face headwinds due to the U.S. ban on Huawei and HiSilicon.
Zacks Industry Rank
The Zacks Electronics – Miscellaneous Products industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #148, which places it in the bottom 41% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates continued underperformance in the days to come.
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 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 Jun 30, 2021, the industry's earnings estimate for the current year has moved down 25.2%.
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 S&P 500 & Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 Index and the Computer & Technology sector in the past year.
The industry has declined 33.4% during this period against the S&P 500 composite's appreciation of 14.4% and the broader sector's rally of 24.9%.
Industry's Current Valuation
On the basis of the forward 12-month P/E, which is a commonly used multiple for valuing electronics-miscellaneous products companies, we see that the industry is currently trading at 14.02X compared with the S&P 500's 17.57X and the sector's forward-12-month P/E of 25.81X.
Over the last five years, the industry has traded as high as 19.58X, as low as 9.92X and at the median of 14.75.
Stocks to Watch
Carrier Global: Palm Beach Gardens, FL-based Carrier Global is benefiting from solid momentum across its HVAC business. Growing demand for the company's robust healthy, safe, sustainable & intelligent building and cold chain solutions remains positive.
Increasing adoption of interconnected smoke detectors remains another positive factor. Further, well-performing Abound continues to drive top-line growth. Carrier Global is witnessing key wins in system-level solutions including hardware, controls and aftermarket, which remains a tailwind.
Carrier Global shares have been down 27.1% on a year-to-date basis. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company's fiscal-year 2022 earnings has been revised by a penny downward to $2.29 over the past 30 days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
KLA Corp.: This Zacks Rank #3 company benefits from increased customer demand across each major product group — defect inspection and metrology.
KLA is benefiting from increased customer demand across each of the major product group. Further, growing investments across multiple nodes and rising capital intensity in Foundry & logic are contributing well to the top-line growth. Increasing customer adoption of metrology applications in leading-edge technology development and capacity monitoring are constantly propelling the optical metrology business, which remains a positive factor.
KLA's shares have declined 15.7% year to date. The Zacks Consensus Estimate for KLAC's fiscal 2022 earnings has moved down by a penny to $20.90 per share over the past 30 days.
Garmin– This Zacks Rank #3 is benefiting from solid momentum in the outdoor segment owing to growing demand for adventure watches. Furthermore, a well-performing marine segment, courtesy of robust chartplotters, remains a major positive. The solid adoption of advanced sonars is also contributing well.
Additionally, strong momentum across specialty categories and new OEM programs is a positive for Garmin. Also, growing auto and aviation segments are benefiting the top line. We note that Garmin's strong focus on continued innovation, diversification and market expansion to explore growth opportunities in all its segments remains a tailwind.
Garmin's shares are down 23.2% year to date. The Zacks Consensus Estimate for GRMN's current-year earnings has moved down by a penny to $5.90 per share in 30 days' time.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.