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Industry Description
The Zacks Manufacturing-Electronics industry comprises companies that manufacture electronic products like battery chargers, battery accessories, outdoor cabinet enclosures, power transmission products, electrical motion controls and motive power devices. Some industry players also provide water-treatment products, engineered flow components, process equipment and turn-key systems. These companies offer state-of-the-art customer support and after-market services to end users. The firms are increasing investments in developing innovative technologies, boosting customer and employee experience, and supply-chain modernization programs. The manufacturing electronic companies sell products and services in various end markets, including robotics, semiconductor, defense, aerospace, medical equipment and satellite communications.
3 Manufacturing Electronics Industry Trends in Focus
Weakness in the Manufacturing Sector: Weakness in the manufacturing sector has been denting the demand in the industry. After witnessing expansion in economic activities for the second consecutive month in February, the manufacturing sector contracted in March, April, May and June. Per the Institute for Supply Management’s (ISM) report, the Manufacturing Purchasing Manager’s Index touched 49% in June. A figure less than 50% indicates a contraction in manufacturing activity. Also, the New Orders Index remained in the contraction territory for the fifth consecutive month, registering 46.4% in June. In addition, supply-chain disruptions, especially related to the availability of electronic components, remain a concern for industry participants of late. This is evident from the latest ISM report’s Supplier Deliveries Index, which reflected slower deliveries for the seventh straight month in June.
Strength in the Electronics Services Market: Despite a slowdown in manufacturing activities, demand across key end markets has been stable. Electronics manufacturers are steadily benefiting from the higher adoption of advanced manufacturing technologies and processes by original equipment manufacturers. The requirement for integrating advanced electronic components into machinery and electronic devices has been supporting the electronics manufacturing services market. In addition, a few industry players with wide exposure to the booming medical and life science markets are witnessing a positive momentum across their businesses due to sturdy demand for their products and solutions. A surge in the e-commerce business has also been boosting several industry participants’ prospects.
Technological Advancement Benefits: With the gradual development of business models and cutting-edge technologies, several industry players have been banking on digitizing their business operations for a while now. With digitization, businesses are gaining a detailed insight into their operational performances, demand cycles, delivery status and supply-chain issues. This, in turn, is helping them bolster their competitiveness in the market with enhanced operational productivity, product quality and lower costs.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Manufacturing – Electronics industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #41. This rank places it in the top 17% of 246 Zacks industries.
The group’s Zacks Industry Rank, basically 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.
Given the strong near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. However, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector & the S&P 500
The Zacks Manufacturing – Electronics industry has outperformed the broader sector and the Zacks S&P 500 composite index over the past year. Over this period, the industry has grown 25.8% compared with the sector’s rise of 12% and the S&P 500 Index’s increase of 17.9%.
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Industry's current Valuation
On the basis of the forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 24.73X compared with the S&P 500’s 22.87X. It is also above the sector’s P/E ratio of 20.61X.
Over the past five years, the industry has traded as high as 25.19X, as low as 18.91X and at the median of 22.61X, as the chart below shows.
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4 Manufacturing Electronics Stocks to Keep a Tab on
AZZ: Based in Fort Worth, TX, this company is engaged in providing metal coating solutions for corrosion protection, including hot-dip galvanizing, anodizing, powder coating and plating to the steel fabrication and other industries. AZZ is well-positioned to benefit from an increase in infrastructure-related project spending in end markets including industrial, construction, and electrical transmission & distribution.
In the past year, shares of this Zacks Rank #1 (Strong Buy) company have gained 40.1%. AZZ delivered an earnings surprise of 8.1%, on average, beating estimates in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
ESCO Technologies: Headquartered in Saint Louis, MO, ESCO Technologies provides engineered filtration, fluid control products and integrated propulsion systems to the aerospace, defense, energy, medical and communications industries. Increase in demand for test and measurement, industrial shielding and medical services is aiding the company’s performance. Rising orders for cartridge-actuated devices/propellant-actuated devices products also bode well.
Shares of this Zacks Rank #1 company have soared 56.8% in the past year. The Zacks Consensus Estimate for ESE’s fiscal 2025 earnings has been revised upward by 6.5% in the past 60 days.
Eaton: Headquartered in Dublin, Ireland, Eaton is a diversified power management company and a global technology leader in electrical components and systems. ETN is benefiting from rising demand from the new AI-data center and contributions from its organic assets. The company is also poised to benefit from the megatrends, including the reindustrialization process started across the globe.
Eaton’s shares have gained 36.7% in the past year. This Zacks Rank #3 (Hold) company reported better-than-expected results in each of the last four quarters, the average being 1.9%.
Emerson: Based in St. Louis, MO, this global engineering and technology company offers a wide range of products and services to customers in the consumer, commercial and industrial markets. Emerson is witnessing solid momentum in the Intelligent Devices and Software and Control segments. Strength in the power end markets is aiding the Final Control business. Robust growth across AspenTech and strength in the power and process end markets are buoying the Measurement & Analytical business.
EMR’s shares have gained 29.2% in the past year. This Zacks Rank #3 company reported better-than-expected results in each of the trailing four quarters, the average being 3.4%.
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This article originally published on Zacks Investment Research (zacks.com).
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