The Zacks Electronics – Manufacturing Machinery industry is expected to benefit from increased capital expenditures by semiconductor manufacturers on high-performance computing, artificial intelligence, advanced packaging and memory. The growing need for data centers, laptops (due to remote work and learning due to the coronavirus) and games (demand caused by the pandemic) is stimulating the demand for memory. Axcelis Technologies ACLS, Entegris ENTG and Veeco Instruments VECO will benefit from the above trends. These companies provide solutions for semiconductor manufacturers and OEMs. While weak demand for smartphones has caused concern, the key catalyst has been strength in the cloud and data centers, medical solutions and games.
Description of the industry
The Zacks Electronics – Manufacturing Machinery industry includes companies that provide a range of solutions to meet the needs of plate processing facilities as well as packaging devices and test facilities for semiconductor manufacturing processes. Solutions offered by industry participants include thin film processing systems, photonics, process control tools (performing macro-defect checks and metrology), organometallic chemical vapor deposition, advanced packaging lithography, wet etching and cleaning, laser annealing and 3D annealing. inspection systems. Several industry participants also offer microcontamination control products and advanced materials processing solutions. It should be noted that recently the transportation, storage and delivery of materials without contaminants have become very important.
3 Trends shaping the future of the electronics industry
Miniaturization raises prospects: Industry participants benefit from the current shift in semiconductor manufacturing technology. Demand for modern packaging, which allows miniaturization of electronic products, remains high. The consistent transition to smaller sizes and the rapid adoption of new device architectures such as FinFET and 3D-NAND transistors, as well as increased use of new manufacturing materials to increase transistor and bit density, are stimulating demand for solutions provided by industry players. Moreover, the emergence of methods such as plate-level packaging, necessitates a high-purity, non-contaminating production environment. The growing demand for clean processing as well as for tools for cleaning and conditioning plates is a key catalyst for industry players.
Complex processes that stimulate demandA: The need for faster, more powerful and energy efficient semiconductors is expected to increase rapidly with the reliable adoption of cloud computing, IoT and AI. Semiconductor manufacturers such as Intel, Samsung, Taiwan Semiconductors, primarily seek to maximize production profits at lower costs. This actually makes semiconductor manufacturing processes more complex and in turn stimulates demand for solutions offered by industry participants. Rapid decision-making for plant automation with IoT support is also a contributing factor. In addition, key catalysts are increased 5G deployment and increased demand for peripheral computing. However, trade tensions between the US and China and the impact of the coronavirus on consumer appetite for next-generation smartphones and digital cameras are some notable headwinds.
Strong demand for NAND, DRAM and SSDA: Increasing demand for NAND and DRAM is positive for industry participants. Moreover, the strong demand for SSDs, driven by data center and cloud costs, is a key catalyst. DRAM is also expected to benefit from high demand in data centers, enterprise and cloud segments. Industry participants are helped by the high demand for chips and higher costs for capital semiconductor equipment.
Sachs Industry Rank points to solid prospects
Industry Zacks Electronics – Manufacturing Machinery is located in the wider sector of computer and technology technology Zacks. It has Zacks Industry Rank # 101, which is in the top 41% of the more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is largely the average of Zacks ’rankings on all participants’ stocks, points to a reliable near-term outlook. Our study shows that the top 50% of industries that rank Zacks outperform the bottom 50% by more than 2: 1.
The position of the industry in the 50% of the best industries in the Zacks ranking is the result of a positive profit forecast for the companies that are part of it. Looking at the revision of the aggregate income estimate, it seems that analysts are optimistic about the revenue growth potential of this group. From March 31, 2021, the estimated revenue of the industry for the current year increased by 25.6%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s latest performance and stock valuation.
The industry outperforms the sector, lagging behind the S&P 500
The Zacks Electronics – Manufacturing Machinery industry has surpassed the wider Zacks computer and technology sector, but lags behind the S&P 500 composite in the past year.
The industry grew 9.5% over the period compared to a 14.5% increase in the S&P 500 and a 1.2% increase in the broader sector.
Performance cost in one year
Current industry assessment
Based on the EV / EBITDA ratio for the last 12 months, which is a frequently used ratio for evaluating Electronics – Manufacturing Machinery companies, we see that the industry is currently trading at 11.99X compared to the S&P 500 14.08X. This is also above the last 12-month EV / EBITDA of the sector at 13.60X.
Over the past five years, the industry has traded up to 17.79X, up to 10.35X and averaging 14.20X, as the chart below shows.
EV / EBITDA ratio (TTM)
3 electronics stocks that you can buy right now
Axcelis TechnologiesA: This company Zacks Rank # 1 (strong purchase) is mainly a manufacturer of ion implant equipment used to produce semiconductor chips in the United States, Europe and Asia.
Axcelis, headquartered in Beverly, Massachusetts, is driven by substantial capital expenditures in mature technology markets that require intensive implants. The strong adoption of the Purion product family has become a catalyst.
Axcelis enjoys a strong Chinese market, driven by significant investments from a large number of domestic customers serving the mature technology market. It is expected that the momentum of orders will increase the top line of Axcelis in 2022.
Sachs ’consensus estimate for Axcelis earnings for 2022 rose 12.4% to $ 3.99 per share over the past 30 days.
Cost and Consensus: ACLS
EntegrisA: This company in Billerica, Massachusetts, provides microcontamination control products, specialty chemicals and advanced materials processing solutions for manufacturing processes in semiconductor and other high-tech industries.
This Za2 grade Zacks is in high demand for its advanced solutions at advanced technology hubs and the growing need for end-to-end pollution control solutions. Entegris is in high demand for its advanced solutions such as liquid filtration, advanced deposition materials and selective edge.
The expected acquisition of CMC Materials deserves attention. Upon completion of the transaction will significantly expand the target market and clientele Entegris. The combined company will have a sustainable business model with approximately 80% revenue from the units.
The consensus estimate of Entegris earnings this year has risen 7.2% to $ 4.16 per share over the past 30 days.
Cost and consensus: ENTG
Veeco InstrumentsA: Ion beam, laser annealing, lithography, MOCVD, and the clean technology of this New York company are an integral part of the production and packaging of advanced semiconductor devices.
Veeco relies on expanding customers due to its innovative product offerings, expanded service capabilities and increased production capacity. Veeco has emerged since 2021 with a strong momentum of orders and an increase in the backlog, which should give investors confidence in its prospects for 2022.
Veeco expects significant growth in 2022, driven by its strong positions in laser annealing, EUV masks and AP lithography. The semiconductor compounds market is also expected to show significant strength this year, which will benefit this company Zacks rank №2.
Zacks ’consensus estimate for Veeco’s earnings for 2022 has not changed and is $ 1.57 per share over the past 30 days.
Price and consensus: VECO
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Sachs Investment Research
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.