3 Electronics Stocks With Upbeat Industry Prospects to Watch

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 Advanced Driver Assistance System (ADAS) remains a tailwind to the industry players. The increasing adoption of software-enabled testing instruments and devices remains another positive. Industry participants like Agilent Technologies A, AMETEK AME and Fortive FTV are well-poised to benefit from the aforesaid factors.

However, widening supply-chain challenges, end-market volatility, inflationary pressures and growing geo-political tensions remain a concern 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, and motors and various test solutions. The major end markets served by this industry are consumer, automobile, industrial, aerospace & defense, healthcare, semiconductors and communications, to name a few. The industry participants are continuously making technological advancements to gain traction among manufacturers of semiconductors, vehicles, machinery, smartphones and medical devices, who are constantly increasing their spending on electronic components.

3 Trends Shaping the Future of Electronics - Testing Equipment Industry

5G Prospects a Boon: The growing deployment of 5G holds near-term promises for the industry players. An uptick in demand for 5G test solutions, required for 5G deployment, is another major positive. The current coronavirus-triggered work-from-home and learn-from-home waves globally, which continue bolstering demand for high-speed Internet services, bode well for electronic companies that are enhancing their 5G efforts. 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 strong efforts made to reinforce the 5G strength.

Solid Adoption of Motion Control & Test Systems is a 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. Further, commercial motor and autonomous vehicles will likely continue to buoy demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings.

Synergies in Pharmaceutical Market Are Tailwinds: The industry is 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 remains another uptrend.

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 #68, 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 outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Aug 31, 2022, the industry’s earnings estimates for the current year have moved up 0.6%.

Before we present a few stocks worth considering for your portfolio, let’s look at the industry’s recent stock-market performance and the valuation picture.

Industry Outperforms S&P 500 & Sector

The Zacks Electronics – Testing Equipment Industry has outerformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.

The companies in the industry have collectively lost 15.4% compared with the S&P 500 and the Computer and Technology sector’s decline of 17.1% and 34.1%, respectively, in the said time 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 24.51X, higher than the S&P 500’s 17.5X and the sector’s 20.96X.

Over the past five years, the industry has traded as high as 31.87X and as low as 18.87X, with a median of 23.78X as the chart below shows.

Price/Earnings Ratio (F12M)

3 Testing Equipment Stocks to Keep a Close Eye on

Agilent: This Palo Alto, CA-based entity is gaining from solid momentum across both small and large molecule applications, which is strengthening its presence in the pharmaceutical market. Strength in Cell Analysis, Liquid Chromatography and Mass Spectrometry platforms remains a tailwind.

This presently Zacks Rank #2 (Buy) player, an original equipment manufacturer of a broad-based portfolio of test and measurement products serving multiple end markets, is experiencing strong momentum across chemical and energy, food, and environmental and forensics markets. A’s solid execution of its cross-lab strategy and a consistent focus on aligning investments with more attractive growth avenues and innovative high-margin product launches remain a positive. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Agilent have lost 8.3% in the past year. The Zacks Consensus Estimate for fiscal 2023 earnings has been revised 0.2% upward over the past 60 days to $5.48 per share.

Price and Consensus: A

AMETEK: This Berwyn, PA-based player is gaining on solid contributions from the Magnetrol International and Crank Software acquisitions, which are driving growth in its Electronic Instruments segment. Benefits from the Pacific Design Technologies buyout are aiding the Electromechanical segment. Further, rising demand for precision motion control solutions remains a major tailwind.

AME, a manufacturer of electronic appliances and electromechanical devices, remains optimistic about its AMETEK Growth Model. This Zacks #2 Ranked player’s proper execution of its four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, are expected to constantly aid its finances in the near term.

The stock has dipped 2% in the past year. The Zacks Consensus Estimate for AME’s 2022 earnings has been revised 1.4% upward over the past 60 days to $5.60 per share.

Price and Consensus: AME

Fortive: This Everett, WA-based entity is benefiting from the strong demand trends for software offerings and their increased orders. A solid momentum across the Fortive Business System tools remains a key catalyst. Another positive is strengthening momentum across Intelligent Operating Solutions and Precision Technologies. Further, FTV is benefiting from increased orders for both software and hardware offerings. Additionally, solid prospects from its Advanced Healthcare Solutions remain noteworthy.

The currently Zacks Rank #3 (Hold) player, a provider of industrial technology and professional instrumentation solutions, is experiencing strong demand for CensiTrac and Provation SaaS offerings. Frequent product launches and synergies from acquisitions are likely to continue contributing to its financial performance in the near term.

The stock has lost 15.1% in the past year. The Zacks Consensus Estimate for Fortive’s 2022 earnings has been revised 0.3% upward over the past 60 days to $3.12 per share.

Price and Consensus: FTV

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