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The Zacks Electronics – Miscellaneous Products industry is suffering from challenging macroeconomic conditions, higher inflation and continued supply-chain constraints in end-markets like automotive, healthcare and industrial. The global economic turmoil is expected to keep semiconductor capex under check, which does not bode well for the industry participants in the near term. However, the increasing average selling price is positive.
Higher spending on advanced technologies is benefiting industry participants like Carrier Global, Flex and Sigma Lithium. Continuing investments in data-center, high-performance computing and 5G end markets are the 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 2023 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 the 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 based 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: Technology transitions are driving product complexities, which are raising the demand for solutions provided by the industry participants. Increasing capital expenditure by semiconductor companies is expected to remain strong in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions), driven by investments in infrastructure, as well as expanding capacity.
Since semiconductor companies are the major customers of miscellaneous electronics product manufacturers, the 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 — favors the industry participants. Notably, logic and foundry spending is anticipated to remain healthy this year.
Supply-Chain Constraints Remain Headwinds: Industry participants are bearing the brunt of the coronavirus-induced challenging macroeconomic environment and supply-chain headwinds. These factors have disrupted end-market demand, creating headwinds for industry participants in the near term.
Volatility in Commodity Prices is Concerning: OEMs are exposed to volatility in the prices of commodities like copper and steel. The coronavirus pandemic has negatively impacted commodity markets. Raging inflation does not bode well for the industry participants.
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 #147, 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 dismal 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 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 Apr 30, 2022, the industry's earnings estimates for the current year have moved down 28%.
Despite the gloomy industry prospects, there are few stocks worth watching. Before we present those few stocks, 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 fallen 21.3% during this period against the S&P 500 composite's drop of 13.2% and the broader sector's decline of 15.2%.
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 15.08X compared with the S&P 500's 17.28X and the sector's forward-12-month P/E of 20.30X.
Over the last five years, the industry traded as high as 19.81X, as low as 10.18X and at the median of 15.01X.
Stocks to Watch
Carrier Global: Palm Beach Gardens, FL-based Carrier Global is a provider of advanced heating, ventilation, refrigeration, air conditioning, fire, security and building automation technologies.
Carrier is benefiting from solid momentum across its Heating, Ventilating and Air Conditioning (HVAC) segment. Strength in North America residential and light commercial businesses is constantly driving HVAC revenues.
CARR shares have moved down 7.9% in the past year. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company's 2023 earnings has climbed a penny to $2.55 per share over the past 30 days.
Flex: The Singapore-based company is benefiting from strength across the Agility Solutions and Reliability Solutions segments. Automotive is expected to gain traction from the increasing demand for electric vehicles. The industrial business is likely to gain momentum from the ongoing secular trends.
Flex raised its revenue outlook for fiscal 2023. This Zacks Rank #2 (Buy) company expects revenues between $29.9 billion and $30.3 billion compared with the earlier mentioned $29.1-$30.1 billion.
The consensus mark for fiscal 2023 earnings has been unchanged at $2.30 per share over the past 30 days. Flex shares have moved up 20.3% in the past year.
Sigma Lithium: This Zacks Rank #2 company focuses on the construction of the largest hard rock lithium operation in the Americas — the Grota do Cirilo project, located in the northeastern part of the state of Minas Gerais, Brazil. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
SGML shares have moved up 157.3% in the past year. The Zacks Consensus Estimate for Sigma Lithium's 2023 earnings has jumped 34% to $4.37 per share over the past 30 days.
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, Flex and Sigma Lithium
For Immediate Release
Chicago, IL – March 21, 2023 – Today, Zacks Equity Research discusses Carrier Global (CARR - Free Report) , Flex (FLEX - Free Report) and Sigma Lithium (SGML - Free Report) .
Industry: Electronics
Link: https://www.zacks.com/commentary/2068132/3-electronics-stocks-to-watch-from-a-challenging-industry
The Zacks Electronics – Miscellaneous Products industry is suffering from challenging macroeconomic conditions, higher inflation and continued supply-chain constraints in end-markets like automotive, healthcare and industrial. The global economic turmoil is expected to keep semiconductor capex under check, which does not bode well for the industry participants in the near term. However, the increasing average selling price is positive.
Higher spending on advanced technologies is benefiting industry participants like Carrier Global, Flex and Sigma Lithium. Continuing investments in data-center, high-performance computing and 5G end markets are the 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 2023 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 the 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 based 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: Technology transitions are driving product complexities, which are raising the demand for solutions provided by the industry participants. Increasing capital expenditure by semiconductor companies is expected to remain strong in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions), driven by investments in infrastructure, as well as expanding capacity.
Since semiconductor companies are the major customers of miscellaneous electronics product manufacturers, the 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 — favors the industry participants. Notably, logic and foundry spending is anticipated to remain healthy this year.
Supply-Chain Constraints Remain Headwinds: Industry participants are bearing the brunt of the coronavirus-induced challenging macroeconomic environment and supply-chain headwinds. These factors have disrupted end-market demand, creating headwinds for industry participants in the near term.
Volatility in Commodity Prices is Concerning: OEMs are exposed to volatility in the prices of commodities like copper and steel. The coronavirus pandemic has negatively impacted commodity markets. Raging inflation does not bode well for the industry participants.
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 #147, 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 dismal 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 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 Apr 30, 2022, the industry's earnings estimates for the current year have moved down 28%.
Despite the gloomy industry prospects, there are few stocks worth watching. Before we present those few stocks, 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 fallen 21.3% during this period against the S&P 500 composite's drop of 13.2% and the broader sector's decline of 15.2%.
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 15.08X compared with the S&P 500's 17.28X and the sector's forward-12-month P/E of 20.30X.
Over the last five years, the industry traded as high as 19.81X, as low as 10.18X and at the median of 15.01X.
Stocks to Watch
Carrier Global: Palm Beach Gardens, FL-based Carrier Global is a provider of advanced heating, ventilation, refrigeration, air conditioning, fire, security and building automation technologies.
Carrier is benefiting from solid momentum across its Heating, Ventilating and Air Conditioning (HVAC) segment. Strength in North America residential and light commercial businesses is constantly driving HVAC revenues.
CARR shares have moved down 7.9% in the past year. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company's 2023 earnings has climbed a penny to $2.55 per share over the past 30 days.
Flex: The Singapore-based company is benefiting from strength across the Agility Solutions and Reliability Solutions segments. Automotive is expected to gain traction from the increasing demand for electric vehicles. The industrial business is likely to gain momentum from the ongoing secular trends.
Flex raised its revenue outlook for fiscal 2023. This Zacks Rank #2 (Buy) company expects revenues between $29.9 billion and $30.3 billion compared with the earlier mentioned $29.1-$30.1 billion.
The consensus mark for fiscal 2023 earnings has been unchanged at $2.30 per share over the past 30 days. Flex shares have moved up 20.3% in the past year.
Sigma Lithium: This Zacks Rank #2 company focuses on the construction of the largest hard rock lithium operation in the Americas — the Grota do Cirilo project, located in the northeastern part of the state of Minas Gerais, Brazil. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
SGML shares have moved up 157.3% in the past year. The Zacks Consensus Estimate for Sigma Lithium's 2023 earnings has jumped 34% to $4.37 per share over the past 30 days.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. 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.