Electronics Test Equipment Outlook: Big Demand Ahead

The Zacks Electronics Test Equipment industry includes companies offering advanced instruments, electronic test equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. It is worth noting that industry participants are benefiting significantly from the advent of software-enabled instruments and testing devices.

Industry players cater to the demand for electronic devices across multiple sectors such as consumer products, automotive, industrial, aerospace and defense, healthcare, semiconductors and communications.

Here are the three main themes in the industry:

The growing use of precision motion control solutions and automated test systems in motion control devices and testing products, particularly in the aerospace, automation, medical and military markets, is a major positive. For example, AMETEK (AME), one of the leading players in the industry, is gaining popularity in these end markets with its robust precision motion control solutions. Additionally, commercial motor vehicles will continue to drive demand for vehicle tracking systems, fleet management solutions and other private fleet applications that are part of the industry’s core offering. Notably, Fortive (FTV) is witnessing an increase in the utilization of its transportation technologies due to the increasing number of commercial vehicles around the world.
The industry is benefiting from the growing use of electrical instruments and software to study the properties of biological molecules and cells in clinical and medical science research. The rapid adoption of these solutions is expected to drive growth for industry participants in the healthcare end-market. We see Agilent Technologies (A), a dominant player in the industry, capitalizing on this trend and gaining popularity in the life sciences research space. Additionally, the medical and pharmaceutical markets offer enormous growth opportunities due to the increasing use of electronic equipment. Moreover, growing demand for RF testing equipment from medical device manufacturers remains a contributing factor.
The rapid adoption of IoT technology and the emergence of 5G technology create robust prospects for industry participants. Moreover, the industry is expected to remain on the growth path thanks to the strong efforts made towards the continuous modification of internet infrastructure, IoT-enabled industrial automation and the evolution of smart cars and autonomous vehicles. Moreover, the strong demand for collaborative robots, which increase the efficiency of the manufacturing process by collaborating with production workers, will benefit the industry.

The Zacks Industry Rank indicates good prospects

The Zacks Electronics – Test Equipment industry falls within the broader Zacks Computers and Technology sector. It has a Zacks Industry Rank of 99, putting it in the top 39% of 254 Zacks industries.

The group’s Zacks Industry Rank, which is essentially an average of the Zacks Rank of all member companies, indicates solid near-term prospects. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. As of July 31, 2019, current-year industry earnings estimates have increased 0.7%.

Before we present some stocks worth including in your portfolio, let’s take a look at the latest stock performance and valuation picture for this industry.

The industry is outperforming the S&P 500 and the sector

Over the last year, the Zacks Electronics – Testing Equipment Industry has outperformed the Zacks S&P 500 composite, as well as the broader Zacks Computer and Technology sector.

Stocks in this industry collectively gained 18.5% compared with the Zacks S&P 500 Index’s gain of 9.8% and the Zacks Computer and Technology sector’s gain of 9.6%.

Price performance within one year

Current industry valuation

Based on the forward 12-month price-to-earnings (P/E) ratio, 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 in sector 20.12X.

Over the past five years, the industry has traded at prices ranging from 26.26X to 18.30X, with a median of 21.92X, as the chart below shows.

Price-to-earnings ratio over a 12-month period

Actions to watch

We believe the near-term growth prospects for this industry are bright due to continued spending by manufacturers of semiconductors, cars, machinery, smartphones and medical devices. Moreover, the emergence of 5G technology is promising.

Below are two Zacks Rank #1 (Strong Buy) stocks that investors can take a closer look at, and two Zacks Rank #3 (Hold) stocks that could be held. You can see complete list of today’s Zacks #1 ranked stocks here.

Itron (ITRI), headquartered in Liberty Lake, Washington, is a global provider of standard, advanced and smart meters and meter communication systems.

Notably, shares of this Zacks Rank #1 company have gained 48.9% over the past year. Moreover, the Zacks Consensus Estimate for 2019 earnings has held steady at $2.90 over the past 30 days.

Price and consensus: ITRI

Teradine (TER), based in North Reading, Massachusetts, is a leading supplier of automated test equipment. It also offers specialized equipment for testing systems. The stock also boasts a Zacks Rank #1.

It is worth noting that the company’s shares have increased by 85.1% over the last year. Moreover, the Zacks Consensus Estimate for 2019 earnings has held steady at $2.50 over the past 30 days.

Price and consensus: TER

AMETEK based in Berwyn, Pennsylvania, is a manufacturer of electronic and electromechanical devices. Notably, shares of this Zacks Rank #3 company have returned 34% over the past year. Moreover, the Zacks Consensus Estimate for 2019 earnings has held steady at $4.10 over the past 30 days.

Price and consensus: AME

Based in Palo Alto, California Agile technologies it also carries a Zacks Rank #3. The company is an original equipment manufacturer with a broad portfolio of test and measurement products serving multiple end markets. It is worth noting that the company’s shares have increased by 19.8% over the last year.

Moreover, the Zacks Consensus Estimate for fiscal 2019 earnings has held steady at $3.08 over the past 30 days.

Price and consensus: A

Today’s Top Zacks Stocks

Want to see updated picks for our top market beating strategies? In 2017-2018, while the S&P 500 Index gained +15.8%, our five screens returned +38.0%, +61.3%, +61.6%, +68.1% and +98, 3%.

This outperformance is not a new phenomenon. From 2000 to 2018, while the S&P averaged +4.8% per year, our best strategies averaged +56.2% per year.

See their latest picks for free >>

Want the latest recommendations from Zacks Investment Research? Today you can download the top 7 stocks for the next 30 days. Click to get this free report