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3 Testing Equipment Stocks With Bright Prospects to Watch

The Zacks Electronics – Testing Equipment industry has been benefiting from 5G-related growth opportunities, strengthening automation drive and the Industry 4.0 momentum for a while. The growing proliferation of self-driving vehicles and the Advanced Driver Assistance System are creating tailwinds for the industry players. The solid adoption of software-enabled testing instruments and devices is a positive. The increasing use of advanced electrical instruments in the pharmaceutical and healthcare industries is another plus. Industry participants like AMETEK AME, Teradyne TER and Fortive FTV are well-poised to benefit from the aforementioned factors.

However, the challenging global macroeconomic environment, end-market volatility, high inflation, unfavorable forex, inventory corrections and geo-political tensions are persistent concerns for the underlined industry.

Industry Description

The Zacks Electronics – Testing Equipment industry comprises companies offering advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end markets served by this industry are consumer, automobile, industrial, aerospace and defense, healthcare, semiconductors and communications, to name a few. Industry participants have been making technological advancements to gain traction among semiconductor, vehicle, machinery, smartphone and medical device manufacturers, who are constantly increasing their spending on electronic components.

3 Trends Shaping the Future of Electronics - Testing Equipment Industry

5G Prospects Act as Boons: The growing deployment of 5G holds near-term promises for the industry players. Another major positive is an uptick in demand for 5G test solutions required for 5G deployment. In addition, the ongoing trend of migrating infrastructure workloads to the cloud, which continues to bolster the demand for high-speed Internet services, bodes well for electronic companies associated with 5G. The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by efforts to reinforce the 5G strength.

Solid Adoption of Motion Control & Test Systems Is a Positive: The 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 an upside. Further, commercial motor and autonomous vehicles will likely continue to hike the demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings.

Synergies in the Pharmaceutical Market Are Tailwinds: The industry has been steadily gaining from the increasing use of electrical instruments and software to interrogate the biological properties of molecules and cells in clinical and medical science research. The rapid adoption of the solutions is anticipated to drive growth for participants in the pharmaceutical end market. Agilent is capitalizing on the trend and gaining traction in the life science research space. The pharmaceutical market holds immense prospects, courtesy of the growing utilization of electronic testing equipment. Rising demand for RF test equipment by medical device manufacturers is another uptrend.


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 #96, which places it in the top 38% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, 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.

Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this industry’s earnings growth potential. Since May 31, 2024, the industry’s earnings estimates for the current year have moved up 0.5%.

Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.

Industry underperforms S&P 500 & Sector

In the past year, the Zacks Electronics – Testing Equipment Industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector.

The companies in the industry have collectively grown 8.3% compared with the S&P 500 and the Computer and Technology sector’s rallies of 23.2% and 38.2%, respectively, in the said period.

One-Year Price Performance

Industry's Current Valuation

Based on the forward 12-month price-to-earnings ratio (P/E), a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 24.72X, higher than the S&P 500’s 21.41X but lower than the sector’s 28.5X.

Over the past five years, the industry has traded as high as 31.40X and as low as 18.63X, with a median of 24.74X, as the chart below shows.

Price/Earnings Ratio (F12M)

3 Testing Equipment Stocks to Keep an Eye on

AMETEK: This Berwyn, PA-based player is gaining from solid contributions from the Navitar, Alphasense, Magnetrol International and Crank Software acquisitions, which are driving growth in its Electronic Instruments segment. Benefits from the Paragon Medical and Bison Engineering buyouts are aiding the Electromechanical segment. Additionally, the acquisitions of United Electronic Industries and Amplifier Research are expected to contribute generously to AMETEK’s top-line growth in the days ahead.

AME manufactures electronic appliances and electromechanical devices. The company remains optimistic about its AMETEK Growth Model. The proper execution of this Zacks #3 Ranked (Hold) player’s four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, are expected to continue aiding its financial performance in the near term.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMETEK has gained 8.7% in the past year. The Zacks Consensus Estimate for the company’s 2024 earnings has been revised 0.1% upward over the past 30 days to $6.83 per share.

Price and Consensus: AME

Teradyne: The North Reading, MA-based company is benefiting from its robust and diversified portfolio. Strong demand for collaborative products remains a tailwind for Teradyne’s robotics business. Positive impacts of AI-driven applications on test demand is another plus.

Solid demand for high-speed DRAM tests is a major tailwind for this Zacks Rank #3 company, which designs, develops, manufactures, and sells automated test equipment and robotics products. In addition, the growing broader 3-nanometer adoption in the mobility space, along with strong demand in the automotive space, driven by the ongoing transition from internal combustion to electric vehicles, is another positive.

Teradyne has gained 30.9% in the past year. The Zacks Consensus Estimate for the company’s 2024 earnings has been unchanged at $3.04 per share over the past 30 days.

Price and Consensus: TER

Fortive: This Everett, WA-based company is benefiting from the strong demand trends for software and service offerings, and increased orders. Solid demand for its solution in the instrumentation, software and data analytics market is a tailwind. A solid momentum across the Fortive Business System tools is a key catalyst. Growing momentum in the healthcare business is another positive. Synergies arising from the acquisition of EA Elektro-Automatik are other tailwinds.

The Zacks Rank #3 company, which is a provider of industrial technology and professional instrumentation solutions, is benefiting from its expanding footprint in the cloud computing space.

The stock has gained 2.3% in the past year. The Zacks Consensus Estimate for Fortive’s 2024 earnings has been unchanged at $3.80 per share over the past 30 days.

Price and Consensus: FTV

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AMETEK, Inc. (AME) : Free Stock Analysis Report

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