Chicago, IL – September 13, 2023 – Today, Zacks Equity Research discusses Apple AAPL, HP HPQ and 3D Systems DDD.
Industry: Mini-Computers
Link: https://www.zacks.com/commentary/2147724/3-stocks-to-watch-from-the-challenging-computer-industry
The Zacks Computer – Mini Computers industry is suffering from the waning demand for consumer PCs, massive supply-chain issues and geopolitical challenges, including raging inflation and high interest. Nevertheless, strong demand for high-end enterprise laptops is benefiting Apple and HP. Steady demand for 3-D printing is aiding 3D Systems. The improving availability of 5G-enabled smartphones has been a key catalyst for industry participants.
The growing adoption of tablets among enterprises bodes well for companies like Apple and Lenovo. The launch of foldable, and AI and ML-infused smartphones, tablets, wearables and hearables is another major growth driver for industry participants. Robust demand for production printers, materials and software bodes well for 3-D printing solution providers.
The Zacks Computer – Mini Computers industry comprises companies that offer smartphones, desktops, laptops, printers, wearables and 3-D printers. Such devices are based either on iOS, MacOS, iPadOS, WatchOS, Microsoft Windows or Google Chrome and Android operating systems. The companies predominantly use processors from Apple, Intel, AMD, Qualcomm, NVIDIA and Samsung.
Expanding screen size, better display and enhanced storage capabilities have been the key catalysts driving the rapid proliferation of smartphones. This has been well-supported by faster mobile processors. Laptops, both consumer and commercial, benefit from faster processors, sleek designs and expanded storage facilities. The addition of healthcare features has been driving the demand for wearables.
Enterprise Adoption Remains Healthy: Strong enterprise demand has been benefiting industry participants. The industry is benefiting from the rapid adoption of Bring Your Own Device (BYOD) in workplaces. Enterprises practicing BYOD allow employees to use their personal devices, including mobiles, laptops and tablets, for work purposes.
Moreover, the growing adoption of a hybrid working environment bodes well for industry participants, as demand for laptops and tablets is expected to increase. Demand for smart devices that offer facial recognition, retina scans, or finger impressions to verify the user for biometrics is gaining traction as enterprises enhance security.
Impressive Form Factor Drives Demand: Expanding screen size, better display and enhanced storage capabilities have been the key catalysts driving the rapid proliferation of smartphones and tablets. This has been well-supported by faster mobile processors from the likes of Qualcomm, NVIDIA, Apple and Samsung.
Improved Internet penetration and speed, along with the evolution of mobile apps, have made smartphones indispensable for consumers. Improved graphics quality is making smartphones suitable for playing sophisticated games. This is driving demand for high-end smartphones and opening up significant opportunities for device makers.
PCs Face Extinction Risk: Personal computers (desktops and laptops), be it Windows or Apple’s MacOS-based ones, have been facing the risk of extinction due to the rapid proliferation of smartphones and tablets. Stiff competition from smartphones has compelled global PC makers to not only upgrade hardware frequently but also add apps and cloud-based services to attract consumers. Nevertheless, the emergence of 5G, AI, machine learning and foldable computers is likely to be the key catalysts in expanding the total addressable market of PCs.
The Zacks Computer – Mini Computers industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #196, which places it in the bottom 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim 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.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Sep 30, 2022, the Zacks Consensus Estimate for this industry’s 2023 earnings has moved down 6.6%.
Despite the gloomy outlook, there are a few stocks worth watching in the sector. But before we present those stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
The Zacks Computer – Mini Computers industry has underperformed the broader Zacks Computer and Technology sector but beat the S&P 500 index over the past year.
The industry has surged 16.4% over this period compared with the S&P 500’s return of 14.5% and the broader sector’s growth of 27.5%.
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 26.65X compared with the S&P 500’s 19.30X and the sector’s 24.17X.
Over the last five years, the industry has traded as high as 32.32X and as low as 11.49X, with the median being 23.64X.
3D Systems – This Zacks Rank #2 (Buy) company benefits from strong orthodontics, healthcare and industrial businesses. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The healthcare business is benefiting from the emergence of Virtual Surgical Planning and Orthopedic applications. 3D Systems is expected to benefit from dominance in the aerospace & defense market. Its partnership with Theradaptive boosts the addressable market. 3D Systems’ prospects are also expected to benefit from its initiatives related to Regenerative Medicine.
The Zacks Consensus Estimate for 2023 loss has widened by a couple of cents to 22 cents per share over the past 30 days. The stock has declined 31.9% in the year-to-date period.
Apple: This Zacks Rank #3 (Hold) company is benefiting from steady demand for iPhone 14 and 14 Plus, as well as expanding footprint in emerging markets. A growing subscriber base and improving customer engagement are tailwinds for the services business.
Apple currently has more than 1 billion paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers worldwide, helping it offer appealing new apps that drive the App Store’s traffic. A growing number of AI-infused apps will attract subscribers to the App Store.
The Zacks Consensus Estimate for fiscal 2023 earnings has increased by a penny to $6.05 per share over the past 30 days. The stock has gained 38% in the year-to-date period.
HP: This Zacks Rank #3 company’s sustained focus on launching the latest and innovative products is likely to help it stay afloat in the current uncertain macroeconomic environment.
Product innovation and differentiations are the key drivers that have helped HPQ maintain its leading position in the PC and printer markets.
The Zacks Consensus Estimate for fiscal 2023 earnings has decreased 11.4% to $3.31 per share over the past 30 days. Shares of HP have gained 10% year to date.
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