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3 Electronics Stocks to Watch From a Challenging Industry
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The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions, high levels of inventories with distributors, and steep interest rates. The global economic turmoil is expected to keep the semiconductor capex under check, which does not bode well for industry participants in the near term. However, players like KLA (KLAC - Free Report) , Carrier Global (CARR - Free Report) and Trimble (TRMB - Free Report) are benefiting from higher spending on advanced technologies, including augmented reality (AR) and virtual reality (VR). Continuing investments in data centers, 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 2024 and beyond. Easing supply-chain constraints are also benefiting industry participants.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of air-conditioning systems, green energy solutions, remote-control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor and optical 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 these 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 industry participants. Increasing investment in expanding manufacturing capacity by semiconductor companies is a key catalyst in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions). 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 industry participants. Notably, logic and foundry spending is anticipated to be healthy this year.
Emerging Markets of Wearables, AR & VR Drive Growth: Industry participants are riding on strong demand for wearables and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets. The adoption of AR and VR is increasing due to the growing proliferation of the metaverse.
Challenging Macroeconomic Condition is a Headwind: Industry participants are suffering from a challenging macroeconomic condition globally, with enterprises showing reluctance in committing to multi-year deals. Raging inflation and unfavorable forex trends do not bode well for 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 #215, which places it in the bottom 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bearish 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 two to one.
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 Feb 28, 2023, earnings estimates for the industry for the current year have moved south by 24.4%.
Given the lackluster prospects, there are a limited number of stocks worth watching in the industry. But before we present a few of those stocks, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500, Broader Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 Index and the broader Zacks Computer & Technology sector in the past year.
The industry has returned 17.8% during this period compared with the S&P 500 composite’s growth of 22% and the broader sector’s return of 43.8%.
One-Year Price Performance
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 17.86X compared with the S&P 500’s 20.56X and the sector’s forward-12-month P/E of 26.22X.
Over the last five years, the industry traded as high as 20.82X and as low as 11.05X, with the median being 15.38X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch Right Now
KLA: This Zacks Rank #3 (Hold) company is benefiting from strong performance of the wafer inspection business, owing to rising demand for advanced wafer inspection applications in leading-edge technology development. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The San Jose, CA-based company is benefiting from growing investments across multiple nodes and rising capital intensity in Foundry & Logic.
The Zacks Consensus Estimate for fiscal 2024 has decreased 2% to $22.88 per share over the past 30 days. KLA shares have jumped 66.4% in the past year.
Price and Consensus: KLAC
Carrier Global: This Palm Beach Gardens, FL-based company’s prospects benefit from secular trends around sustainability and healthy buildings. The increasing adoption of its intelligent climate and energy solutions is aiding top-line growth.
Carrier expects Viessmann Climate Solution sales to be up mid-single digits from the 2023-end figure of roughly $4.2 billion, with high teens adjusted EBITDA margins. It expects significant revenue synergy from the acquisition and second-half 2024 to be more productive compared with the first half due to lower orders in Europe.
CARR shares have gained 21.6% in the past year. The Zacks Consensus Estimate for this Zacks Rank #3 company’s 2024 earnings has decreased 1.7% to $2.83 per share over the past 30 days.
Price and Consensus: CARR
Trimble: This Zacks Rank #3 company is benefiting from strength across buildings and infrastructure, and transportation segments. Bookings in AECO software businesses increased more than 30% year over year, driven in part by the strong cross-sell and TC1 performance in fourth-quarter 2024.
Strong momentum in the transportation segment driven by organic growth in Enterprise and MAPS is a positive. Transporeon reported record bookings in the recently concluded fourth quarter.
TRMB shares have gained 5.9% in the past year. The consensus mark for Trimble’s 2024 earnings has declined 0.7% to $2.69 per share over the past 30 days.
Price and Consensus: TRMB
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3 Electronics Stocks to Watch From a Challenging Industry
The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions, high levels of inventories with distributors, and steep interest rates. The global economic turmoil is expected to keep the semiconductor capex under check, which does not bode well for industry participants in the near term. However, players like KLA (KLAC - Free Report) , Carrier Global (CARR - Free Report) and Trimble (TRMB - Free Report) are benefiting from higher spending on advanced technologies, including augmented reality (AR) and virtual reality (VR). Continuing investments in data centers, 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 2024 and beyond. Easing supply-chain constraints are also benefiting industry participants.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of air-conditioning systems, green energy solutions, remote-control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor and optical 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 these 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 industry participants. Increasing investment in expanding manufacturing capacity by semiconductor companies is a key catalyst in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions). 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 industry participants. Notably, logic and foundry spending is anticipated to be healthy this year.
Emerging Markets of Wearables, AR & VR Drive Growth: Industry participants are riding on strong demand for wearables and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets. The adoption of AR and VR is increasing due to the growing proliferation of the metaverse.
Challenging Macroeconomic Condition is a Headwind: Industry participants are suffering from a challenging macroeconomic condition globally, with enterprises showing reluctance in committing to multi-year deals. Raging inflation and unfavorable forex trends do not bode well for 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 #215, which places it in the bottom 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bearish 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 two to one.
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 Feb 28, 2023, earnings estimates for the industry for the current year have moved south by 24.4%.
Given the lackluster prospects, there are a limited number of stocks worth watching in the industry. But before we present a few of those stocks, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500, Broader Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 Index and the broader Zacks Computer & Technology sector in the past year.
The industry has returned 17.8% during this period compared with the S&P 500 composite’s growth of 22% and the broader sector’s return of 43.8%.
One-Year Price Performance
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 17.86X compared with the S&P 500’s 20.56X and the sector’s forward-12-month P/E of 26.22X.
Over the last five years, the industry traded as high as 20.82X and as low as 11.05X, with the median being 15.38X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch Right Now
KLA: This Zacks Rank #3 (Hold) company is benefiting from strong performance of the wafer inspection business, owing to rising demand for advanced wafer inspection applications in leading-edge technology development. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The San Jose, CA-based company is benefiting from growing investments across multiple nodes and rising capital intensity in Foundry & Logic.
The Zacks Consensus Estimate for fiscal 2024 has decreased 2% to $22.88 per share over the past 30 days. KLA shares have jumped 66.4% in the past year.
Price and Consensus: KLAC
Carrier Global: This Palm Beach Gardens, FL-based company’s prospects benefit from secular trends around sustainability and healthy buildings. The increasing adoption of its intelligent climate and energy solutions is aiding top-line growth.
Carrier expects Viessmann Climate Solution sales to be up mid-single digits from the 2023-end figure of roughly $4.2 billion, with high teens adjusted EBITDA margins. It expects significant revenue synergy from the acquisition and second-half 2024 to be more productive compared with the first half due to lower orders in Europe.
CARR shares have gained 21.6% in the past year. The Zacks Consensus Estimate for this Zacks Rank #3 company’s 2024 earnings has decreased 1.7% to $2.83 per share over the past 30 days.
Price and Consensus: CARR
Trimble: This Zacks Rank #3 company is benefiting from strength across buildings and infrastructure, and transportation segments. Bookings in AECO software businesses increased more than 30% year over year, driven in part by the strong cross-sell and TC1 performance in fourth-quarter 2024.
Strong momentum in the transportation segment driven by organic growth in Enterprise and MAPS is a positive. Transporeon reported record bookings in the recently concluded fourth quarter.
TRMB shares have gained 5.9% in the past year. The consensus mark for Trimble’s 2024 earnings has declined 0.7% to $2.69 per share over the past 30 days.
Price and Consensus: TRMB
