Zacks Industry Outlook Eaton, Zurn Elkay Water Solutions, EnerSys and Powell Industries

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Chicago, IL – August 28, 2024 – Today, Zacks Equity Research discusses Eaton Corp. plc ETN, Zurn Elkay Water Solutions Corp. ZWS, EnerSys ENS and Powell Industries, Inc. POWL.

Industry: Electronics manufacturing

Link: https://www.zacks.com/commentary/2327695/4-stocks-to-buy-from-the-promising-manufacturing-electronics-industry

The Zacks Manufacturing – Electronics industry is poised for growth due to robust demand in the electronic services end market, increasing use of advanced manufacturing technologies, and product innovation efforts. A rise in e-commerce activities is also expected to boost industry growth.

A slowdown in production activity and a decline in incoming orders could continue to affect the performance of industry players. Eaton Corp. plc, Zurn Elkay Water Solutions Corp., EnergySys And Powell Industries, Inc. are some industry participants who are expected to capitalize on existing opportunities.

Industry description

The Zacks Manufacturing-Electronics industry includes companies that manufacture electronic products such as battery chargers, battery accessories, outdoor cabinet enclosures, power transmission products, electrical motion controllers, and drive equipment. Some industry players also offer water treatment products, engineered flow components, process equipment, and turnkey systems. These companies offer state-of-the-art customer support and after-market services to end users.

Companies are increasing their investments in developing innovative technologies, improving customer and employee satisfaction, and implementing supply chain modernization programs. Electronics manufacturers sell products and services in a variety of end markets, including robotics, semiconductors, defense, aerospace, medical devices, and satellite communications.

3 trends in the electronics manufacturing industry in focus

Weakness in the manufacturing sector: Continued weakness in the manufacturing sector has affected demand in the industry. According to the Institute for Supply Management (“ISM”) report, the Purchasing Managers’ Index for manufacturing reached 46.8% in July, up from 48.5% in June. A reading below 50% indicates a decline in manufacturing activity. After ending a 16-month contraction with growth in March, the manufacturing sector contracted for the fourth consecutive month in July. The index for new orders also remained in contraction territory for the fourth consecutive month, recording 47.4% in July.

Strength in the electronic services market: Despite a slowdown in manufacturing activities, demand remained stable in key end markets. Electronics manufacturers are steadily benefiting from the increasing adoption of advanced manufacturing technologies and processes by original equipment manufacturers. The demand for the integration of advanced electronic components into machines and electronic devices has supported the electronics manufacturing services market.

In addition, several industry players with a strong presence in the booming medical and life sciences markets are witnessing positive momentum in their businesses due to strong demand for their products and solutions. A surge in e-commerce business has also improved the outlook of several industry participants.

Benefits of technological progress: With the gradual evolution of business models and cutting-edge technologies, many industry players have been turning to digitization of their business operations for some time now. Digitization provides companies with detailed insights into their operational performance, demand cycles, delivery status, and supply chain issues. This, in turn, helps them strengthen their competitiveness in the market through improved operational productivity, product quality, and lower costs.

Zacks Industry Rank indicates bright prospects

The Zacks Manufacturing and Electronics industry, which belongs to the broader Zacks Industrial Products sector, currently has a Zacks Industry Rank #15, putting it in the top 6% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, essentially the average of the Zacks Rank of all member stocks, suggests optimistic near-term prospects. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than two times.

Given the industry’s strong near-term prospects, we’re introducing some notable stocks for you to consider. But it’s worth taking a look at shareholder returns and the industry’s current valuation first.

Industry outperforms sector and lags behind S&P 500

The Zacks Manufacturing – Electronics industry has outperformed the broader sector but lagged the Zacks S&P 500 Composite Index year to date.

During this period, the industry recorded an increase of 8.2 percent compared to the sector and S&P 500 index growth of 7.9 percent and 18.1 percent, respectively.

Current assessment of the industry

Based on the forward price-to-earnings (P/E) ratio for the next 12 months, a commonly used multiple to value manufacturing stocks, the industry currently trades at 22.99, compared to 21.72 for the S&P 500. It is also above the sector’s P/E ratio of 19.16.

Over the last five years, the industry has traded at highs of 28.43X, lows of 14.73X, and a median of 22.26X.

4 Manufacturing and Electronics Stocks to Buy

Powell Industries: The company, headquartered in Houston, Texas, is engaged in the design, manufacture, and distribution of customized equipment and systems. The company has observed several positive trends in its oil, gas, and petrochemical end markets, including growth in energy transition projects, such as biofuels, carbon capture, and hydrogen. In addition, significant project awards, supported by heavy investments in LNG, related gas processing, and petrochemical processes, are likely to boost performance in the coming quarters. POWL currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Powell Industries shares have risen 118.1% year to date. The company has reported better-than-expected earnings over the past four quarters, with an average of 69.9%. The Zacks Consensus Estimate for the company’s fiscal year 2024 earnings (ending September 2024) has been revised 32.9% upward over the past 60 days.

Eaton: Headquartered in Dublin, Ireland, this is a diversified power management company and a leading global technology provider of electrical components and systems. Eaton is benefiting from improved end-market conditions, increasing demand from the new AI data center, a solid order backlog and product development initiatives through investments in research and development.

Shares of the Zacks Rank #2 (Buy) company have gained 23.3% year to date. The company has reported better-than-expected earnings in each of the last four quarters, an average of 4.7%. The Zacks Consensus Estimate for 2024 earnings has been revised 1.5% upward over the past 60 days.

Zurn Elkay Water Solutions: Based in Milwaukee, Wisconsin, the company designs, manufactures and markets water management solutions primarily in the United States and Canada. ZWS is well positioned to capitalize on growing awareness of the need for clean, filtered drinking water, solid demand for its products and solutions, and its focus on operational execution.

Zurn Elkay Water Solutions shares have gained 9.1% year-to-date. The company has delivered an average earnings surprise of 8.8%, beating estimates over the past four quarters. The Zacks Consensus Estimate for the Zacks Rank #2 company’s earnings for 2024 has been revised 2.5% upward over the past 60 days.

EnergySys: The company, headquartered in Pennsylvania, is a leading provider of energy storage solutions for industrial applications around the world. ENS will benefit from a solid product offering, a clear focus on product innovation and strength in the electric industrial forklift market. Global megatrends such as the expansion of the 5G network, electrification, automation and decarbonization will benefit the company.

Although shares of the Zacks Rank #2 company have fallen 2% year-to-date, they have recovered 9.5% over the past six months. EnerSys has surprised by 1.5% on average, beating estimates over the past four quarters. The Zacks Consensus Estimate for ENS’s fiscal 2025 earnings (ending March 2025) has been revised 2.6% upward over the past 60 days.

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Past performance is no guarantee of future results. Any investment involves the risk of loss. This material is for informational purposes only and does not constitute investment, legal, accounting or tax advice or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. No assumption should be made that investments in any security, company, sector or market identified and described have been or will be profitable. All information is current as of the date of publication and is subject to change without notice. The views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities in securities. These returns are from hypothetical portfolios consisting of Zacks Rank = 1 stocks that are rebalanced monthly with no transaction costs. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information on the performance numbers displayed in this press release.

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