For Immediate Release
Chicago, IL – October 18, 2022 – Today, Zacks Equity Research discusses Sensata Technologies Holding plc (
ST Quick Quote ST - Free Report) , Watts Water Technologies, Inc. ( WTS Quick Quote WTS - Free Report) and Allied Motion Technologies, Inc. .
Industry: Instruments - Automation Control
The Zacks Instruments – Control industry is expected to benefit from the increasing demand for energy-efficient production processes, safety and security concerns and integrated software systems. Efforts to replace obsolete industrial control systems with state-of-the-art technology are likely to be conducive to growth.
However, supply chain disruptions and commodity price inflation are likely to hurt the process automation and instrumentation market. Nonetheless,
Sensata Technologies Holding plc, Watts Water Technologies, Inc. and Allied Motion Technologies, Inc. are likely to gain from precedence to energy efficiency and cost reduction, digitized technologies, adoption of industrial automation and optimum utilization of resources. Industry Description
The Zacks Instruments – Control industry comprises manufacturers of precision and specialty motion control components and systems used in a wide range of industries. These companies deliver sophisticated flow measurement, control and communication solutions for air, water and other forms of gas and liquid used for commercial and residential purposes.
The companies offer an array of products for fuel, combustion, fluid, actuation, electronic applications, energy control and optimization, particularly for the process industry. Some industry players offer heating, ventilation and air conditioning products. These include water heaters and electric heating systems for under-floor radiant applications for boiler manufacturers and alternative energy control packages. Few firms provide water reuse products, consisting of drainage and rainwater harvesting solutions.
What's Shaping the Future of Instruments - Control Industry Material cost inflation, resulting from incessant inflationary pressures, has affected margins in the near term. Transportation costs are also on the rise. With firms being unable to pass on the entire increase in raw material prices to customers due to stiff competition, profitability is mostly on the wane. Inflation Woes Persist:
The companies largely operate in markets that are susceptible to high competitive pressures and are under constant threat by low-cost suppliers, primarily based in China. Due to an international footprint, these firms are further exposed to foreign exchange fluctuations that affect their cash flows.
Growth depends on their capability to develop technologically-advanced products that meet appropriate industry standards. Changes in competitive conditions, including the availability of the latest products and services, the introduction of new distribution channels and changes in OEM and aftermarket pricing, are likely to hamper operations and affect sales.
The industry’s growth is largely driven by an emphasis on digitized technologies such as the Industrial Internet of Things. The demand for process automation and instrumentation products is dependent on manufacturing activities. Rising Demand for Digitized Technologies:
Moreover, the demand for safety automation systems and multivariable pressure transmitters is likely to provide significant growth opportunities. The use of process instrumentation equipment offers a host of benefits, including improvement in the quality of the product and emission reduction. So, the increase in adoption of technology across various industries and growing regulation and compliance will continue to be major growth drivers.
In addition, field instruments play a significant role in process control by measuring the key elements such as temperature, pressure, flow and level in process industries such as chemicals, mining and pharmaceuticals. These consist of transmitters that primarily measure the pressure, flow, temperature, level and humidity of liquids and gases, which are essential for achieving optimum productivity. A differentiated product offering gives greater opportunities for companies to strengthen their market position.
The industry players are facing significant supply chain challenges, resulting in stretched lead times and higher material costs. Lockdown restrictions continue to affect markets, customers and suppliers. While the companies are focused on improving their operating performance, an inability to obtain adequate supplies of raw materials and product parts at favorable prices could hurt their businesses. Uncertainties Owing to Supply Chain Disruptions:
Though market uncertainties seem to have eased to some extent, these firms continue to closely monitor supply chain issues and inflation. They remain focused on long-term strategic priorities while addressing lingering near-term disruptions.
Increasing focus on adopting automation across all industry verticals and spending more on new technologies is expected to drive growth over the next few years. North America is expected to continue dominating the market in terms of adopting automation. Rising infrastructural investments in the energy and power sector, increasing demand for food and beverages, and favorable government policies are aiding the growth. Focus on Process Automation:
The pharmaceutical industry's process automation and instrumentation market are also growing due to low-cost factors and a changing regulatory environment. Focus on high-quality equipment indicates increasing buyer maturity and willingness to partner with process control industry players.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Instruments – Control industry is housed within the broader Zacks
Computer and Technology sector. It currently has a Zacks Industry Rank #191, which places it in the bottom 24% of more than 250 Zacks industries.
Zacks Industry Rank, which is 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 outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few instruments control 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 Sector, Lags S&P 500
The Zacks Instruments – Control industry has outperformed the broader Zacks Computer and Technology sector but lagged the S&P 500 composite in the past year.
The industry has lost 27.5% compared with the S&P 500 and sector’s decline of 21.2% and 37.2%, respectively.
Industry's Current Valuation
The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing instruments control stocks. The industry has a trailing 12-month EV/EBITDA of 10.16X compared with the S&P 500’s 10.95X. It is above the sector’s trailing 12-month EV/EBITDA of 7.95X.
Over the past five years, the industry has traded as high as 17.47X, as low as 6.72X, with a median of 11.78X.
3 Instruments Control Stocks to Watch Sensata Technologies: Headquartered in Attleboro, MA, Sensata is a global industrial technology company that develops, manufactures and sells innovative sensor-based solutions. It is considered one of the leading suppliers of electrical protection and power management solutions.
The company offers a streamlined set of products, which helps eliminate redundant costs and gives greater pricing flexibility. It invests in cutting-edge technology that enables hybrid and electric vehicles to be more efficient, cost-effective, robust and safe.
The company is expanding its electrification ecosystem to facilitate the seamless transition to electric vehicles as it aims to be a leading provider of mission-critical sensor-rich hardware and software solutions. It has long-term earnings growth expectations of 11% and currently carries a Zacks Rank #3 (Hold). You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Watts Water Technologies: Headquartered in North Andover, MA, Watts Water provides one of the broadest plumbing, heating and water quality product lines globally. The company is focused on enhancing organic growth, driving margin expansion and reinvesting in productivity initiatives. It benefits from aggressive cost-reduction actions and a strong balance sheet.
Watts Water aims to launch smart and connected products, which are likely to provide it with further differentiation in the marketplace. The company believes that the Asia-Pacific segment’s margin will expand primarily driven by higher volume. Furthermore, the operating margin in the Americas segment will likely grow, driven by volume leverage and productivity initiatives.
Watts Water expects that its pricing actions should also help to partly mitigate commodity inflation. The Zacks Consensus Estimate for its current-year earnings has been revised 18.5% upward over the past year, while that for the next year is up 11.3%. It has long-term earnings growth expectations of 8% and currently carries a Zacks Rank #3.
Allied Motion Technologies: Headquartered in Amherst, NY, Allied Motion manufactures precision and specialty-controlled motion products and solutions for the global market. The company is known for its expertise in electromagnetic, mechanical and electronic motion technology. Its major served markets include Vehicle, Medical, Aerospace and Defense and Industrial.
The company is focused on being the controlled motion solutions leader in target markets by leveraging its technology to develop integrated precision solutions. The consensus estimate for current-year earnings has been up 10.9% since May 2022. It carries a Zacks Rank #3.
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