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3 Electronics Stocks to Watch From a Prospering Industry
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The Zacks Electronics - Manufacturing Machinery industry participants are benefiting from increased capital spending on high-performance computing, AI, mobility, augmented reality and virtual reality, advanced packaging, lithography and wet processing solutions by semiconductor manufacturers. The ongoing transformation in cloud computing is noteworthy. Entegris (ENTG - Free Report) , MKS Instruments (MKSI - Free Report) and Axcelis Technologies (ACLS - Free Report) are gaining from the above-mentioned trends. These companies provide solutions to semiconductor manufacturers and OEMs. Strength in cloud & data centers, healthcare and automotive has been the key catalysts for these industry participants. However, industry participants are suffering from challenging macroeconomic conditions globally. Softness in the 3D NAND end-market has been a headwind.
Industry Description
The Zacks Electronics - Manufacturing Machinery industry comprises companies that provide a range of solutions to address the needs of wafer processing facilities, as well as device packaging and test facilities, of semiconductor manufacturing processes. The solutions offered by the industry participants include thin-film processing systems, photonics, process-control tools (that perform macro defect inspections and metrology), metal-organic chemical vapor deposition, advanced packaging lithography, wet etch and clean, laser annealing and 3D wafer inspection systems. A few industry participants also offer micro-contamination control products and advanced material-handling solutions. Notably, contamination-free transportation, storage and delivery of materials have gained immense significance in recent times.
3 Trends Shaping the Future of the Electronics Industry
Miniaturization Enhances Prospects: Industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. The demand for advanced packaging, which enables the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions and the rapid adoption of new device architecture like FinFET transistors and 3D-NAND, along with the increasing utilization of new manufacturing materials to increase transistor and bit density, are driving the demand for solutions provided by the industry players. Moreover, the emergence of techniques like wafer-level packaging is driving the need for a high-purity manufacturing environment free of contaminants. The rising demand for clean processing, as well as wafer carrier cleaning and conditioning tools, is a key catalyst for industry participants.
Complex Process Driving Demand: The requirement for faster, more powerful and energy-efficient semiconductors is expected to increase rapidly with the robust adoption of cloud computing, IoT and AI. Semiconductor manufacturers like Intel, Samsung and Taiwan Semiconductors are primarily looking to maximize manufacturing yields at lower costs. This is making semiconductor manufacturing processes more complex and driving the demand for solutions offered by industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. The increasing deployment of 5G and the growing demand for edge computing are other key catalysts.
NAND, DRAM & SSD Demand Strong: The improving demand for NAND and DRAM is a positive for the industry participants. Strong SSD demand, driven by data center and cloud spending, is another key catalyst. DRAM is expected to benefit from strong demand in the data center, enterprise and cloud segments. Strong demand for chips and higher spending on semiconductor capital equipment are aiding the industry participants.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Electronics - Manufacturing Machinery industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #69, which places it in the top 27% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish 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 position 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, analysts appear optimistic about this group’s earnings growth potential. Since Sept. 30, 2024, the industry’s earnings estimates for 2024 have increased 2.4%.
Given the bullish industry outlook, several stocks are worth buying. However, before we present the stocks 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 Lags Sector and S&P 500
The Zacks Electronics - Manufacturing Machinery industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 over the past year.
The industry has returned 15.9% over this period compared with the S&P 500’s growth of 39.4% and the broader sector’s increase of 48.3%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Electronics - Manufacturing Machinery companies, we see that the industry is trading at 12.32X compared with the S&P 500’s 19.38X. It is below the sector’s trailing 12-month EV/EBITDA of 19.08X.
Over the last five years, the industry has traded as high as 18.37X and as low as 7.89X, with the median being 12.52X, as the charts below show.
EV/EBITDA Ratio (TTM)
3 Electronics Stocks to Watch Right Now
Entegris: This Zacks Rank #3 (Hold) company is a leading supplier of mission-critical advanced materials and process solutions for the semiconductor and other high-technology industries.
Headquartered in Billerica, MA, Entegris expects the semiconductor market to gradually recover in the second half of this year and will accelerate entering 2025. For the current year, ENTG expects sales to be roughly $3.3 billion, indicating 7% growth over 2023, excluding divestitures.
The Zacks Consensus Estimate for Entegris’ 2024 earnings has declined by a penny to $3.13 per share over the past 30 days. Shares have declined 11.5% year to date.
Price and Consensus: ENTG
MKS Instruments: This Zacks Rank #3 company is benefiting from a strong portfolio and prudent cost control. It is gaining from the growing adoption of its solutions, which are used in the majority of the steps needed to manufacture a semiconductor chip.
MKSI is benefiting from the strong adoption of Photonics and Optical solutions. Photonics benefits from strong demand for its advanced lithography, metrology and inspection applications. The optical solutions business continues to gain traction across the EUV ecosystem for both lithography and inspection applications, with OXY metrology and inspection applications continuing to grow as a percentage of its overall semiconductor revenues, a trend likely to continue in the long term.
The Zacks Consensus Estimate for MKSI’s 2024 earnings has increased by a penny to $5.61 per share over the past 30 days. Shares have declined 0.4% year to date.
Price and Consensus: MKSI
Axcelis Technologies: This Zacks Rank #3 company designs, manufactures and services ion implantation and other processing equipment used in the fabrication of semiconductor chips.
Headquartered in Beverly, MA, Axcelis is benefiting from robust demand for ion implantation systems into the silicon carbide market. Demand for silicon carbide applications remains strong as customers continue to expand capacity to meet the domestic production goals of the EV market.
The Zacks Consensus Estimate for Axcelis’ 2024 earnings has declined by a penny to $3.13 per share over the past 30 days. Shares have declined 11.5% year to date.
Price and Consensus: ACLS
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3 Electronics Stocks to Watch From a Prospering Industry
The Zacks Electronics - Manufacturing Machinery industry participants are benefiting from increased capital spending on high-performance computing, AI, mobility, augmented reality and virtual reality, advanced packaging, lithography and wet processing solutions by semiconductor manufacturers. The ongoing transformation in cloud computing is noteworthy. Entegris (ENTG - Free Report) , MKS Instruments (MKSI - Free Report) and Axcelis Technologies (ACLS - Free Report) are gaining from the above-mentioned trends. These companies provide solutions to semiconductor manufacturers and OEMs. Strength in cloud & data centers, healthcare and automotive has been the key catalysts for these industry participants. However, industry participants are suffering from challenging macroeconomic conditions globally. Softness in the 3D NAND end-market has been a headwind.
Industry Description
The Zacks Electronics - Manufacturing Machinery industry comprises companies that provide a range of solutions to address the needs of wafer processing facilities, as well as device packaging and test facilities, of semiconductor manufacturing processes. The solutions offered by the industry participants include thin-film processing systems, photonics, process-control tools (that perform macro defect inspections and metrology), metal-organic chemical vapor deposition, advanced packaging lithography, wet etch and clean, laser annealing and 3D wafer inspection systems. A few industry participants also offer micro-contamination control products and advanced material-handling solutions. Notably, contamination-free transportation, storage and delivery of materials have gained immense significance in recent times.
3 Trends Shaping the Future of the Electronics Industry
Miniaturization Enhances Prospects: Industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. The demand for advanced packaging, which enables the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions and the rapid adoption of new device architecture like FinFET transistors and 3D-NAND, along with the increasing utilization of new manufacturing materials to increase transistor and bit density, are driving the demand for solutions provided by the industry players. Moreover, the emergence of techniques like wafer-level packaging is driving the need for a high-purity manufacturing environment free of contaminants. The rising demand for clean processing, as well as wafer carrier cleaning and conditioning tools, is a key catalyst for industry participants.
Complex Process Driving Demand: The requirement for faster, more powerful and energy-efficient semiconductors is expected to increase rapidly with the robust adoption of cloud computing, IoT and AI. Semiconductor manufacturers like Intel, Samsung and Taiwan Semiconductors are primarily looking to maximize manufacturing yields at lower costs. This is making semiconductor manufacturing processes more complex and driving the demand for solutions offered by industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. The increasing deployment of 5G and the growing demand for edge computing are other key catalysts.
NAND, DRAM & SSD Demand Strong: The improving demand for NAND and DRAM is a positive for the industry participants. Strong SSD demand, driven by data center and cloud spending, is another key catalyst. DRAM is expected to benefit from strong demand in the data center, enterprise and cloud segments. Strong demand for chips and higher spending on semiconductor capital equipment are aiding the industry participants.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Electronics - Manufacturing Machinery industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #69, which places it in the top 27% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish 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 position 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, analysts appear optimistic about this group’s earnings growth potential. Since Sept. 30, 2024, the industry’s earnings estimates for 2024 have increased 2.4%.
Given the bullish industry outlook, several stocks are worth buying. However, before we present the stocks 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 Lags Sector and S&P 500
The Zacks Electronics - Manufacturing Machinery industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 over the past year.
The industry has returned 15.9% over this period compared with the S&P 500’s growth of 39.4% and the broader sector’s increase of 48.3%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Electronics - Manufacturing Machinery companies, we see that the industry is trading at 12.32X compared with the S&P 500’s 19.38X. It is below the sector’s trailing 12-month EV/EBITDA of 19.08X.
Over the last five years, the industry has traded as high as 18.37X and as low as 7.89X, with the median being 12.52X, as the charts below show.
EV/EBITDA Ratio (TTM)
3 Electronics Stocks to Watch Right Now
Entegris: This Zacks Rank #3 (Hold) company is a leading supplier of mission-critical advanced materials and process solutions for the semiconductor and other high-technology industries.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Headquartered in Billerica, MA, Entegris expects the semiconductor market to gradually recover in the second half of this year and will accelerate entering 2025. For the current year, ENTG expects sales to be roughly $3.3 billion, indicating 7% growth over 2023, excluding divestitures.
The Zacks Consensus Estimate for Entegris’ 2024 earnings has declined by a penny to $3.13 per share over the past 30 days. Shares have declined 11.5% year to date.
Price and Consensus: ENTG
MKS Instruments: This Zacks Rank #3 company is benefiting from a strong portfolio and prudent cost control. It is gaining from the growing adoption of its solutions, which are used in the majority of the steps needed to manufacture a semiconductor chip.
MKSI is benefiting from the strong adoption of Photonics and Optical solutions. Photonics benefits from strong demand for its advanced lithography, metrology and inspection applications. The optical solutions business continues to gain traction across the EUV ecosystem for both lithography and inspection applications, with OXY metrology and inspection applications continuing to grow as a percentage of its overall semiconductor revenues, a trend likely to continue in the long term.
The Zacks Consensus Estimate for MKSI’s 2024 earnings has increased by a penny to $5.61 per share over the past 30 days. Shares have declined 0.4% year to date.
Price and Consensus: MKSI
Headquartered in Beverly, MA, Axcelis is benefiting from robust demand for ion implantation systems into the silicon carbide market. Demand for silicon carbide applications remains strong as customers continue to expand capacity to meet the domestic production goals of the EV market.
The Zacks Consensus Estimate for Axcelis’ 2024 earnings has declined by a penny to $3.13 per share over the past 30 days. Shares have declined 11.5% year to date.
Price and Consensus: ACLS
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