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The Zacks Laser Systems and Components industry is suffering from challenging macroeconomic conditions globally, weak economic conditions in Europe, a sluggish economic environment in China, softer demand in industrial markets, and lackluster capital equipment spending. However, industry participants like IPG Photonics and Lumentum benefit from upbeat demand from electric vehicles, electronics, semiconductors and healthcare end-markets. Robust demand for high-power continuous wave and pulsed laser for cutting and battery-processing applications, growing demand for high-performance optical devices, and the ongoing adoption of cloud computing, autonomous driving, IoT and 5G are the key catalysts.
Industry Description
The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, optical and photonic products, and scanning technology solutions. The key end markets are semiconductors, metrology, advanced communication and medical devices. Industry participants also provide high-precision 3D sensors and system products for inspection and metrology.
Moreover, in the medical devices space, laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. Developing safe and effective aesthetic treatments has resulted in a well-established market for these procedures. The industry also operates in the cyclical surface mount technology and semiconductor capital equipment markets.
3 Laser Systems & Components Industry Trends to Watch
Emerging Applications Driving Demand for Lasers: The industry is benefiting from increasing demand for emerging applications like additive manufacturing, facial recognition, gesture recognition, LiDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. Notably, 3DS — the technology that allows users to create 3D printable objects, control games with body gestures and measure objects — is in high demand.
Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. IoT-supported manufacturing equipment is far easier to update with firmware. The combination reduces costs and increases the flexibility and reliability manifold by enabling material-handling capabilities through remote sources. Strong demand from semiconductor and allied markets, which are seeing a rapid shift toward the production of micro and nano devices, is another positive for industry participants.
Challenging Macroeconomic Condition Hurts Prospect: Industry participants suffer from sluggish capital spending by original equipment manufacturers. Moreover, raging inflation, a strong U.S. dollar, energy headwinds in Europe and weakness in China are expected to hurt industry participants in the near term.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #173, which places it in the bottom 31% 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 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 2 to 1.
Despite the lackluster outlook, there are a few stocks worth watching in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Underperforms Broader Sector and S&P 500
The Zacks Laser Systems and Components industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 19% over this period against the S&P 500’s rise of 16.1% and the broader sector’s return of 36.8%.
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 5.94X compared with the S&P 500’s 3.83X. It is also trading above the sector’s trailing 12-month P/S of 3.72X.
Over the last five years, the industry has traded as high as 12.64X and as low as 3.19X, with a median of 6.06X.
2 Laser Stocks to Watch
IPG Photonics: Oxford, MA-based IPG Photonics develops and manufactures fiber and diode lasers, fiber amplifiers, and transceivers for diverse applications like materials processing, advanced applications, communications and medical. The stock has gained 7.9% in the year-to-date period.
IPG Photonics benefits from solid demand for AMB lasers, LightWELD, green and ultrafast lasers, as well as beam delivery. IPG expects medical sales to recover to normal levels in the third quarter. Its diversifying revenue base and declining exposure to low-margin businesses are the key catalysts. Focus on expanding footprint in the e-mobility and renewable energy end-markets are drivers.
Lumentum: This San Jose, CA-based company anticipates strong growth in Cloud & Networking revenues, driven by an accelerating demand for AI in 2024. It expects cloud applications to drive more than 30% of Lumentum cloud and networking revenues.
LITE shares have lost 18.9% in the past year. The consensus mark for this Zacks Rank #3 company’s fiscal 2024 earnings has declined 17.69% to $1.54 per share over the past 30 days.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights IPG Photonics and Lumentum
For Immediate Release
Chicago, IL – December 7, 2023 – Today, Zacks Equity Research discusses IPG Photonics (IPGP - Free Report) and Lumentum (LITE - Free Report) .
Industry: Lasers
Link: https://www.zacks.com/commentary/2194249/2-laser-systems-stocks-to-watch-in-a-challenging-industry
The Zacks Laser Systems and Components industry is suffering from challenging macroeconomic conditions globally, weak economic conditions in Europe, a sluggish economic environment in China, softer demand in industrial markets, and lackluster capital equipment spending. However, industry participants like IPG Photonics and Lumentum benefit from upbeat demand from electric vehicles, electronics, semiconductors and healthcare end-markets. Robust demand for high-power continuous wave and pulsed laser for cutting and battery-processing applications, growing demand for high-performance optical devices, and the ongoing adoption of cloud computing, autonomous driving, IoT and 5G are the key catalysts.
Industry Description
The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, optical and photonic products, and scanning technology solutions. The key end markets are semiconductors, metrology, advanced communication and medical devices. Industry participants also provide high-precision 3D sensors and system products for inspection and metrology.
Moreover, in the medical devices space, laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. Developing safe and effective aesthetic treatments has resulted in a well-established market for these procedures. The industry also operates in the cyclical surface mount technology and semiconductor capital equipment markets.
3 Laser Systems & Components Industry Trends to Watch
Emerging Applications Driving Demand for Lasers: The industry is benefiting from increasing demand for emerging applications like additive manufacturing, facial recognition, gesture recognition, LiDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. Notably, 3DS — the technology that allows users to create 3D printable objects, control games with body gestures and measure objects — is in high demand.
Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. IoT-supported manufacturing equipment is far easier to update with firmware. The combination reduces costs and increases the flexibility and reliability manifold by enabling material-handling capabilities through remote sources. Strong demand from semiconductor and allied markets, which are seeing a rapid shift toward the production of micro and nano devices, is another positive for industry participants.
Challenging Macroeconomic Condition Hurts Prospect: Industry participants suffer from sluggish capital spending by original equipment manufacturers. Moreover, raging inflation, a strong U.S. dollar, energy headwinds in Europe and weakness in China are expected to hurt industry participants in the near term.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #173, which places it in the bottom 31% 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 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 2 to 1.
Despite the lackluster outlook, there are a few stocks worth watching in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Underperforms Broader Sector and S&P 500
The Zacks Laser Systems and Components industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 19% over this period against the S&P 500’s rise of 16.1% and the broader sector’s return of 36.8%.
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 5.94X compared with the S&P 500’s 3.83X. It is also trading above the sector’s trailing 12-month P/S of 3.72X.
Over the last five years, the industry has traded as high as 12.64X and as low as 3.19X, with a median of 6.06X.
2 Laser Stocks to Watch
IPG Photonics: Oxford, MA-based IPG Photonics develops and manufactures fiber and diode lasers, fiber amplifiers, and transceivers for diverse applications like materials processing, advanced applications, communications and medical. The stock has gained 7.9% in the year-to-date period.
IPG Photonics benefits from solid demand for AMB lasers, LightWELD, green and ultrafast lasers, as well as beam delivery. IPG expects medical sales to recover to normal levels in the third quarter. Its diversifying revenue base and declining exposure to low-margin businesses are the key catalysts. Focus on expanding footprint in the e-mobility and renewable energy end-markets are drivers.
The Zacks Consensus Estimate for IPGP’s 2023 earnings has been unchanged at $4.69 per share in the past 30 days. IPG Photonics currently has a Zacks Rank #3 (Hold). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lumentum: This San Jose, CA-based company anticipates strong growth in Cloud & Networking revenues, driven by an accelerating demand for AI in 2024. It expects cloud applications to drive more than 30% of Lumentum cloud and networking revenues.
LITE shares have lost 18.9% in the past year. The consensus mark for this Zacks Rank #3 company’s fiscal 2024 earnings has declined 17.69% to $1.54 per share over the past 30 days.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.