Electronics Testing Equipment Outlook: Solid Demand Ahead

The Zacks Electronics -Testing Equipment Industry comprises companies that offer advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. Notably, the industry participants are benefiting significantly from the emergence of software-enabled testing instruments and devices.

The industry players cater to demand for electronic devices across a wide array of sectors like consumer, automobile, industrial, aerospace & defense, healthcare, semiconductors and communications.

Here are the three major themes in the industry:

  • 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 a major positive. For instance, AMETEK (AME), one of the prominent industry players, has been gaining traction across these end-markets driven by its robust precision motion control solutions. Additionally, commercial motor vehicles will continue to bolster demand for vehicle tracking systems, fleet management solutions and other private fleet applications, which are part of the industry’s key offerings. Notably, Fortive (FTV) is witnessing an increase in adoption rate of its transportation technologies, on account of growing proliferation of commercial vehicles worldwide.
  • The industry is benefiting from increasing usage of electrical instruments and software in the interrogation of biological properties of molecules and cells in clinical and medical science research work. Rapid adoption of these solutions is anticipated to drive growth for industry participants in the healthcare end-market. We note that Agilent Technologies (A), a dominant player in the industry, is capitalizing on this trend and gaining traction in the life science research space. Additionally, medical devices and pharmaceutical markets hold immense growth opportunities, owing to the growing utilization of electronic equipment. Moreover, strengthening demand for RF test equipment by medical device manufacturers remains a tailwind.
  • The rapid adoption of IoT technology and the emergence of 5G technology present solid prospects for the industry participants. Moreover, the industry is expected to remain on growth trajectory backed by strong efforts made toward the ongoing modification of the Internet infrastructure, IoT supported industrial automation and evolution of smart cars & autonomous vehicle. Further, robust demand for collaborative robots, which add efficiency to the production process by working with the production workers, will benefit the industry.

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 #99, which places it at the top 39% of 254 Zacks industries.

The group’s Zacks Industry Rank, which is 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. Since Jul 31, 2019, the industry’s earnings estimate for the current year has increased 0.7%.

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 Outperforms S&P 500 & Sector

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

The stocks in this industry have collectively gained 18.5% compared with the Zacks S&P 500’s growth of 9.8% and the Zacks Computer and Technology sector’s rally of 9.6%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing Electronics – Testing Equipment stocks, the industry is currently trading at 22.21X, higher than the S&P 500’s 17.2X and the sector’s 20.12X.

Over the past five years, the industry has traded as high as 26.26X and as low as 18.30X, with the median being at 21.92X, as the chart below shows.

Forward 12-Month Price-to-Earnings Ratio

Stocks to Watch

We believe the near-term growth prospects of this industry are bright on account of continuous spending by manufacturers of semiconductors, automobiles, machineries, smartphones and medical devices. Further, the emergence of 5G technology holds promise.

Below are two stocks flaunting a Zacks Rank #1 (Strong Buy) that investors may take a look at and two with a Zacks Rank #3 (Hold) which can be retained. You can see the complete list of today’s Zacks #1 Rank stocks here.

Itron (ITRI) headquartered in Liberty Lake, WA, is the global supplier of standard, advanced, and smart meters and meter communication systems.

Notably, this Zacks Rank #1 stock has returned 48.9% over the past year. Further, the Zacks Consensus Estimate for 2019 earnings has been stable over the past 30 days at $2.90.

Price and Consensus: ITRI

Teradyne (TER) based in North Reading, MA is a leading provider of automated test equipment. It also offers specialized system testing equipment. The stock also flaunts a Zacks Rank #1.

Notably, the stock has returned 85.1% over the past year. Further, the Zacks Consensus Estimate for 2019 earnings has been stable over the past 30 days at $2.50.

Price and Consensus: TER

AMETEK based in Berwyn, PA is the manufacturer of electronic appliances and electromechanical devices. Notably, this Zacks Rank #3 stock has returned 34% over the past year. Further, the Zacks Consensus Estimate for 2019 earnings has been stable over the past 30 days at $4.10.

Price and Consensus: AME

Palo Alto, CA-based Agilent Technologies also has a Zacks Rank #3. The company is an original equipment manufacturer of a broad-based portfolio of test and measurement products serving multiple end markets. Notably, the stock has returned 19.8% over the past year.

Further, the Zacks Consensus Estimate for fiscal 2019 earnings has been stable over the past 30 days at $3.08.

Price and Consensus: A

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Teradyne, Inc. (TER): Free Stock Analysis Report

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