2 Office Equipment Stocks to Watch in a Booming Industry
Zacks Office Automation and Equipment Industry attendees love cannon CAJ and Seiko Epson SEKEY is benefiting from the growing demand for coronavirus-led medical equipment systems and a low-to-medium class of printers, thanks to the continued rise in demand for work from home and e-learning. Heavy capital expenditures on lithography equipment for memory devices and sensors have benefited industry participants. The rapid adoption of the Internet of Things and 5G technologies has boosted sales of CMOS sensors and communication devices, which bodes well for these companies. Nonetheless, the industry is facing supply chain disruption due to the coronavirus pandemic. Macroeconomic slowdown, high inflation rate and increased price competition are hurting industry players.
Description of the industry
The Zacks office automation and equipment industry includes companies that provide products and services related to e-commerce, shipping, digital delivery, printing, digital cameras, healthcare and industrial enterprises. Industry participants are located primarily in Japan and the United States. The industry has changed rapidly with advances in internet and printing technology. The shift in customer preference from monochrome to color products and from hardware to services and solutions has been remarkable. Companies like Canon are launching new full-frame mirrorless products amid falling demand for SLR cameras. Industry participants cater to a broad market ranging from small home offices (SOHO) and small and medium enterprises (SMB) to large enterprises. The trend of working and learning from home has been beneficial for industry participants.
3 trends shaping the future of the office automation and equipment industry
Hybrid work to meet demand: Growing preference for the hybrid work model is driving demand for home and office printers. Hybrid working essentially means an increased presence in the office compared to full-fledged remote working. Industry players expect a recovery in print volume, thanks to the economic reopening and rising office footfall.
Supply chain constraints hurt growth: Companies in the sector are subject to production and supply constraints. Inflation and fears of an economic slowdown are major headwinds for industry players. Additionally, the increased supply of products from local manufacturers along with their low-cost alternatives are forcing industry players to cut prices. This eats away at the bottom line of industry participants.
Sluggish demand for office equipment Mars Prospects: Weak demand for copiers and office equipment due to the increasing adoption of smartphones and portable devices has hurt the growth of the industry. Heavy investments in technology to innovate and customize products specific to customer needs weigh on margins. In addition, the product life cycles being short, the investments in research and development increase.
Zacks’ Industry Rankings Indicate Bright Prospects
The Zacks office automation and equipment industry is housed within the broader Zacks IT and technology sector. It carries a Zacks Industry Ranking of #97, which places it in the top 38% of over 250 Zacks industries.
The group’s Zacks Industry Rank, which is essentially the average Zacks Rank of all member stocks, indicates a bright near-term outlook. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of industries ranked by Zacks is the result of a positive earnings outlook for the constituent companies overall. Looking at revisions to overall earnings estimates, it appears analysts are optimistic about the earnings growth potential of this group. Since April 30, 2021, industry earnings estimates for the current year have shifted 77% north.
But before outlining the industry’s top picks, it’s worth taking a look at industry shareholder returns and current valuation.
Industrials outperforms sector, lags S&P 500
Automation and office equipment industry Zacks underperformed the Zacks S&P 500 composite, but outperformed its own sector over the past year.
The industry is down 4.3% over the period compared to the 15.7% rise in the Zacks IT and Technology sector and the 1.9% decline in the S&P 500.
Year-over-year price performance
Current industry assessment
Based on the 12-month forward price-to-earnings (P/E) ratio, which is commonly used to value office and equipment stocks, the industry is currently trading at 10.05X versus 17.76X of the S&P 500 and 21.26 for the sector. X.
Over the past five years, the industry has traded as high as 23.94X and as low as 15.33X, recording a median of 18.81X, as seen in the chart below.
Forward 12-Month Price-to-Earnings (P/E) Ratio
2 stocks to watch right now
cannon: This Zacks Rank #3 (Hold) expects print volume to increase in the remainder of 2022, driven by the economic recovery and higher office footfall.
Canon’s focus on expanding its new businesses – industrial medical equipment and commercial printing – should drive long-term growth.
However, a fragile economic recovery, the negative impact of the Russian-Ukrainian conflict and higher levels of inflation are significant risks for Canon.
Canon, based in Tokyo, Japan, has lost 3% over the past year. Zacks’ consensus estimate for its current-year earnings has fallen 3% to $2 per share in the past 30 days.
Pricing and Consensus: CAJ
Seiko Epson: Seiko, based in Suwa, Japan, also has a Zacks rank No. 3. The company is benefiting from strong demand for high-capacity ink tank printers, ink cartridge printers, projectors and robots.
The stock has lost 14.6% over the past year. The Zacks consensus estimate for Seiko’s earnings for the current year has been flat at 71 cents per share over the past 30 days.
Pricing and Consensus: SEKEY
Click to get this free report
Canon, Inc. (CAJ): Free Inventory Analysis Report
Seiko Epson Corp. (SEKEY): free stock analysis report
To read this article on Zacks.com, click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.