Zacks Industry Outlook Highlights: Canon and Epson
For immediate release
Chicago, IL – December 29, 2021 – Today Zacks Equity Research discusses office equipment including Canon Inc. CAJ and Seiko Epson Corporation SEKEY.
Zacks Automation and Office Equipment Industry Participants Like Cannon and Seiko Epson are taking advantage of the growing demand for coronavirus-driven medical equipment systems and a lower-middle 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 communications devices, which bodes well for these companies.
Nonetheless, the industry is facing a supply chain disruption due to the coronavirus pandemic. Additionally, coronavirus-driven remote working is hurting the demand for office products. The macroeconomic slowdown, increased currency risk in emerging markets and intensified price competition are hurting players in the industry.
Zacks’ automation and office equipment industry includes companies that provide products and services related to e-commerce, shipping, digital delivery, printing, digital cameras, healthcare and industrial companies. Industry participants are primarily located in Japan and the United States. The industry has evolved rapidly with the advancement of internet and printing technology.
The evolution of customer preferences from monochrome to color products and from hardware to services and solutions has been notable. Companies like Canon are launching new full-frame mirrorless products amid declining demand for SLR cameras. Industry participants cater to a large market, from small home offices (SOHO) and small and medium-sized businesses (SMBs) to large enterprises. The trend towards work and home learning has been beneficial to industry participants.
3 trends shaping the future of the office automation and equipment industry
Supply chain constraints hamper growth: Companies in the sector are subject to production and supply chain constraints. Additionally, increased product offerings from local manufacturers along with their low cost alternatives are forcing industry participants to cut prices. This eats away at the bottom line of industry participants.
Low demand for office equipment March Outlook: Low demand for copiers and office equipment due to the increasing adoption of smartphones and portable devices has hampered the growth of the industry. Heavy investments in technology to innovate and customize products specific to customer needs drive down margins. In addition, as product life cycles are short, investments in research and development are increasing.
Remote work Decrease in demand: The growing adoption of bring your own device (BYOD) to offices is driving the demand for automated software solutions, reducing the need for office equipment and printers. In addition, the acceleration of the digital exchange of information, particularly aided by the coronavirus epidemic, has reduced the print volume.
Notably, the wave of working from home induced by the coronavirus has spurred demand for video communication and remote working solutions. This should hurt the prospects of industry participants.
Zacks industry rankings show bright prospects
Zacks ‘office automation and equipment industry is part of Zacks’ larger IT and technology industry. It carries a Zacks Industry Rank # 72, which places it in the top 28% of over 250 Zacks industries.
The group’s Zacks Industry Rank, which is essentially the average of the Zacks Rank of all member stocks, indicates good prospects for the near term. 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 positive earnings prospects for all of the constituent companies. Looking at the revisions to the overall earnings estimates, it looks like analysts are bullish on the earnings growth potential of this group. Since December 31, 2020, industry profit estimates for the current year have shifted 109.3% north.
But before presenting the industry’s top picks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector, Lags S&P 500
Zacks’ office automation and equipment industry has underperformed the Zacks S&P 500 composite, but has outperformed its own sector over the past year.
The industry posted a 26.8% return in that time frame, compared with a 24.7% increase in Zacks’ IT and tech sector and the S&P 500 rally of 27.1%.
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 sector is currently trading at 11.44X versus 21.77X for the S&P. 500 and 29.01 for the sector. X.
Over the past five years, the industry has traded as low as 24.13X and as low as 10.55X, recording a median of 16.62X.
2 shares to buy now
Cannon: This Zacks Rank # 2 (Purchasing) benefits from strong demand for inkjet printers, particularly in the Asia-Pacific market. You can see the full list of Zacks # 1 Rank (Strong Buy) stocks today here.
In addition, strong demand for medical equipment is expected to drive revenue growth for Canon’s Medical Systems division.
Canon, in its trade policy brief, announced its five-year plans which include initiatives to increase market share in the printing industry. Canon plans to tap the demand for distributed printing and improve product competitiveness. The company also intends to start a new optical business.
Canon, based in Tokyo, Japan, has delivered a 29.7% return in the past year. Zacks’ consensus estimate for current year earnings has held steady at $ 1.76 per share for the past 30 days.
Seiko Epson: Suwa, based in Japan, Seiko has a Zacks Rank # 2. The company is riding a strong demand for high capacity ink tank printers, ink cartridge printers, projectors and robots.
The stock has returned 18.4% in the past year. Zacks’ consensus estimate for the company’s current year earnings has held steady at 74 cents a share for the past 30 days.
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