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3 Electronics Stocks With Upbeat Industry Prospects to Watch
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The Zacks Electronics – Testing Equipment industry has been benefiting from 5G-related growth opportunities, strengthening automation drive and the Industry 4.0 momentum for a while. A strong recovery in the automotive sector, along with the growing proliferation of self-driving vehicles and solid prospects of the Advanced Driver Assistance System, is a tailwind for the industry players. The increasing adoption of software-enabled testing instruments and devices is another positive. Industry participants like AMETEK (AME - Free Report) , Teradyne (TER - Free Report) and Itron (ITRI - Free Report) are well-poised to benefit from the aforementioned factors.
However, a challenging global macroeconomic environment, end-market volatility, recessionary fears, unfavorable forex and growing geo-political tensions are persistent concerns for the underlined industry.
Industry Description
The Zacks Electronics – Testing Equipment industry comprises companies offering advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end markets served by this industry are consumer, automobile, industrial, aerospace and defense, healthcare, semiconductors, and communications, to name a few. Industry participants have been making technological advancements to gain traction among semiconductors, vehicles, machinery, smartphones and medical device manufacturers, who are constantly increasing their spending on electronic components.
4 Trends Shaping the Future of Electronics - Testing Equipment Industry
Solid Adoption of Motion Control & Test Systems is Positive: The 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 markets, is an upside. Commercial motor and autonomous vehicles will likely continue to hike the demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings.
Synergies in the Pharmaceutical Market are Tailwinds: The industry has been steadily gaining from the increasing use of electrical instruments and software to interrogate the biological properties of molecules and cells in clinical and medical science research. The rapid adoption of the solutions is anticipated to drive growth for participants in the pharmaceutical end market. Agilent is capitalizing on the trend and gaining traction in the life science research space. The pharmaceutical market holds immense prospects, courtesy of the growing utilization of electronic testing equipment. Rising demand for RF test equipment by medical device manufacturers is another uptrend.
5G Prospects Act as Boons: The growing deployment of 5G holds near-term promises for the industry players. Another major positive is an uptick in demand for 5G test solutions required for 5G deployment. In addition, the ongoing trend of migrating infrastructure workloads to cloud, which continues to bolster the demand for high-speed Internet services, bodes well for electronic companies associated with 5G. The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by efforts to reinforce the 5G strength.
Macroeconomic Headwinds Pose Concerns: Aggravating global recession fears and high inflation have negatively impacted the rate of deal wins. Due to the challenging macroeconomic scenario, enterprises are reluctant to sign multi-year deals worldwide. These trends do not bode well for the industry participants.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #67 at present, which places it in the top 27% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this industry’s earnings growth potential. Since May 31, 2024, the industry’s earnings estimates for the current year have moved up 0.2%.
Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
Industry Underperforms S&P 500 & Sector
In the past year, the Zacks Electronics – Testing Equipment Industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector.
The companies in the industry have collectively gained 13.2% compared with the S&P 500 and the Computer and Technology sector’s rallies of 25.7% and 33%, respectively, in the said period.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-earnings ratio (P/E), a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 24.04X, higher than the S&P 500’s 21.45X and lower than the sector’s 26.07X.
Over the past five years, the industry has traded as high as 26.64X and as low as 20.41X, with a median of 24.85X, as the chart below shows.
Price/Earnings Ratio (F12M)
3 Testing Equipment Stocks to Watch
AMETEK: This Berwyn, PA-based player is gaining from solid contributions from the Navitar, Alphasense, Magnetrol International and Crank Software acquisitions, which are driving growth in its Electronic Instruments segment. Benefits from the Paragon Medical and Bison Engineering buyouts are aiding the Electromechanical segment. The acquisitions of United Electronic Industries and Amplifier Research are expected to contribute generously to AMETEK’s top-line growth in the days ahead.
AME manufactures electronic appliances and electromechanical devices. The company remains optimistic about its AMETEK Growth Model. The proper execution of this Zacks #3 Ranked (Hold) player’s four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, are expected to continue aiding its financial performance in the near term.
AMETEK has gained 10.4% in the past year. The Zacks Consensus Estimate for the company’s 2024 earnings has been unchanged over the past 30 days at $6.77 per share, indicating year-over-year growth of 6.1%.
Price and Consensus: AME
Teradyne: The North Reading, MA-based company is benefiting from its robust and diversified portfolio. Strong demand for collaborative products remains a tailwind for Teradyne’s robotics business. The positive impacts of AI-driven applications on test demand are other plus.
Solid demand for high-speed DRAM tests is a major tailwind for this Zacks Rank #3 company, which designs, develops, manufactures, and sells automated test equipment and robotics products. The growing broader 3-nanometer adoption in the mobility space, along with strong demand in the automotive space, driven by the ongoing transition from internal combustion to electric vehicles, is another positive.
Teradyne has gained 36.2% in the past year. The Zacks Consensus Estimate for the company’s 2024 earnings has been unchanged at $3.02 per share over the past 30 days, suggesting year-over-year growth of 3.1%.
Price and Consensus: TER
Itron: This Liberty Lake, WA-based entity is gaining from rising trends in electrification, gas safety, energy transition, grid edge digitalization and water efficiency. Increasing demand for smart water meters and communication modules is contributing well. Strength in distributed energy resource management is a plus. Solid factory output, enabled by improved component supply, is another positive.
The Zacks Rank #3 player, one of the leading global suppliers of a wide range of standard, advanced and smart meters and meter communication systems, including networks and communication modules, software, devices, sensors, data analytics, and services, is experiencing strong growth in recurring and one-time service revenues. Itron’s growing efforts toward expanding product lines, which aid the utilities in meeting decarbonization and sustainability goals, are positive.
Shares of Itron have gained 63.9% in the past year. The Zacks Consensus Estimate for 2024 earnings has been revised 2.5% upward in the past 30 days to $4.59 per share, indicating year-over-year growth of 36.6%.
Price and Consensus: ITRI
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The Zacks Electronics – Testing Equipment industry has been benefiting from 5G-related growth opportunities, strengthening automation drive and the Industry 4.0 momentum for a while. A strong recovery in the automotive sector, along with the growing proliferation of self-driving vehicles and solid prospects of the Advanced Driver Assistance System, is a tailwind for the industry players. The increasing adoption of software-enabled testing instruments and devices is another positive. Industry participants like AMETEK (AME - Free Report) , Teradyne (TER - Free Report) and Itron (ITRI - Free Report) are well-poised to benefit from the aforementioned factors.
However, a challenging global macroeconomic environment, end-market volatility, recessionary fears, unfavorable forex and growing geo-political tensions are persistent concerns for the underlined industry.
Industry Description
The Zacks Electronics – Testing Equipment industry comprises companies offering advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end markets served by this industry are consumer, automobile, industrial, aerospace and defense, healthcare, semiconductors, and communications, to name a few. Industry participants have been making technological advancements to gain traction among semiconductors, vehicles, machinery, smartphones and medical device manufacturers, who are constantly increasing their spending on electronic components.
4 Trends Shaping the Future of Electronics - Testing Equipment Industry
Solid Adoption of Motion Control & Test Systems is Positive: The 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 markets, is an upside. Commercial motor and autonomous vehicles will likely continue to hike the demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings.
Synergies in the Pharmaceutical Market are Tailwinds: The industry has been steadily gaining from the increasing use of electrical instruments and software to interrogate the biological properties of molecules and cells in clinical and medical science research. The rapid adoption of the solutions is anticipated to drive growth for participants in the pharmaceutical end market. Agilent is capitalizing on the trend and gaining traction in the life science research space. The pharmaceutical market holds immense prospects, courtesy of the growing utilization of electronic testing equipment. Rising demand for RF test equipment by medical device manufacturers is another uptrend.
5G Prospects Act as Boons: The growing deployment of 5G holds near-term promises for the industry players. Another major positive is an uptick in demand for 5G test solutions required for 5G deployment. In addition, the ongoing trend of migrating infrastructure workloads to cloud, which continues to bolster the demand for high-speed Internet services, bodes well for electronic companies associated with 5G. The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by efforts to reinforce the 5G strength.
Macroeconomic Headwinds Pose Concerns: Aggravating global recession fears and high inflation have negatively impacted the rate of deal wins. Due to the challenging macroeconomic scenario, enterprises are reluctant to sign multi-year deals worldwide. These trends do not bode well for the industry participants.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #67 at present, which places it in the top 27% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this industry’s earnings growth potential. Since May 31, 2024, the industry’s earnings estimates for the current year have moved up 0.2%.
Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
Industry Underperforms S&P 500 & Sector
In the past year, the Zacks Electronics – Testing Equipment Industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector.
The companies in the industry have collectively gained 13.2% compared with the S&P 500 and the Computer and Technology sector’s rallies of 25.7% and 33%, respectively, in the said period.
One-Year Price Performance
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Industry's Current Valuation
Based on the forward 12-month price-to-earnings ratio (P/E), a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 24.04X, higher than the S&P 500’s 21.45X and lower than the sector’s 26.07X.
Over the past five years, the industry has traded as high as 26.64X and as low as 20.41X, with a median of 24.85X, as the chart below shows.
Price/Earnings Ratio (F12M)
.jpg)
3 Testing Equipment Stocks to Watch
AMETEK: This Berwyn, PA-based player is gaining from solid contributions from the Navitar, Alphasense, Magnetrol International and Crank Software acquisitions, which are driving growth in its Electronic Instruments segment. Benefits from the Paragon Medical and Bison Engineering buyouts are aiding the Electromechanical segment. The acquisitions of United Electronic Industries and Amplifier Research are expected to contribute generously to AMETEK’s top-line growth in the days ahead.
AME manufactures electronic appliances and electromechanical devices. The company remains optimistic about its AMETEK Growth Model. The proper execution of this Zacks #3 Ranked (Hold) player’s four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, are expected to continue aiding its financial performance in the near term.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMETEK has gained 10.4% in the past year. The Zacks Consensus Estimate for the company’s 2024 earnings has been unchanged over the past 30 days at $6.77 per share, indicating year-over-year growth of 6.1%.
Price and Consensus: AME
Teradyne: The North Reading, MA-based company is benefiting from its robust and diversified portfolio. Strong demand for collaborative products remains a tailwind for Teradyne’s robotics business. The positive impacts of AI-driven applications on test demand are other plus.
Solid demand for high-speed DRAM tests is a major tailwind for this Zacks Rank #3 company, which designs, develops, manufactures, and sells automated test equipment and robotics products. The growing broader 3-nanometer adoption in the mobility space, along with strong demand in the automotive space, driven by the ongoing transition from internal combustion to electric vehicles, is another positive.
Teradyne has gained 36.2% in the past year. The Zacks Consensus Estimate for the company’s 2024 earnings has been unchanged at $3.02 per share over the past 30 days, suggesting year-over-year growth of 3.1%.
Price and Consensus: TER
Itron: This Liberty Lake, WA-based entity is gaining from rising trends in electrification, gas safety, energy transition, grid edge digitalization and water efficiency. Increasing demand for smart water meters and communication modules is contributing well. Strength in distributed energy resource management is a plus. Solid factory output, enabled by improved component supply, is another positive.
The Zacks Rank #3 player, one of the leading global suppliers of a wide range of standard, advanced and smart meters and meter communication systems, including networks and communication modules, software, devices, sensors, data analytics, and services, is experiencing strong growth in recurring and one-time service revenues. Itron’s growing efforts toward expanding product lines, which aid the utilities in meeting decarbonization and sustainability goals, are positive.
Shares of Itron have gained 63.9% in the past year. The Zacks Consensus Estimate for 2024 earnings has been revised 2.5% upward in the past 30 days to $4.59 per share, indicating year-over-year growth of 36.6%.
Price and Consensus: ITRI