Chicago, IL – February 27, 2025 – Today, Zacks Equity Research discusses BWX Technologies BWXT, Fabrinet FN and OSI Systems OSIS.
Industry: Electronics Components
Link: https://www.zacks.com/commentary/2422049/3-electronics-components-stocks-to-buy-from-a-challenging-industry
The Zacks Electronics - Miscellaneous Components industry participants are suffering a challenging global macroeconomic environment and end-market volatility. Growing geopolitical tensions and foreign currency headwinds are taking a toll on the industry players. Nevertheless, industry players are benefiting from the ongoing automation drive and increased spending by manufacturers of semiconductors, automobiles, machinery and mobile phones.
Industry participants like BWX Technologies, Fabrinet and OSI Systems are well-poised to benefit from the solid adoption of Artificial Intelligence (AI) and the democratization of IoT, which are transforming robotics, industrial automation, transportation systems, retail and healthcare. Easing supply-chain constraints are benefiting the industry participants.
The Zacks Electronics - Miscellaneous Components industry primarily comprises companies providing various accessories and parts used in electronic products. The industry participants’ offerings include power control and sensor technologies to mitigate equipment damage, testing products for safety, and advanced medical solutions.
They cater to varied end markets, such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics. Customers in this industry are mainly original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.
Automation Boom a Tailwind: The requirement for faster, more powerful and energy-efficient electronics leads to increased automation. Control systems, such as computers, and robots and information technologies for handling different processes and machinery, are driving the industry. The growing installation of collaborative robots, which add efficiency to production processes by working with production workers, will benefit the industry participants. IoT-supported factory automation solutions are other contributing factors. The evolution of smart cars and autonomous vehicles is expected to drive growth for the industry.
Miniaturization Remains a Key Lever: The industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. Demand for advanced packaging, enabling the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions, the rapid adoption of device architectures like FinFET transistors and 3D-NAND, and the increasing utilization of new manufacturing materials to increase transistor and bit density are driving the demand for solutions provided by industry players.
Geopolitical Tensions Are Worrisome: The ongoing Russia-Ukraine war and the souring relationship between the United States and China are headwinds. Increasing dependency on AI-backed electronic devices on semiconductors and current restrictions ordered by the United States on trading with China, which remains the main hub for chip production, is a significant negative for the industry.
The Zacks Electronics - Miscellaneous Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #157, which places it in the bottom 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically 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.
Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
The Zacks Electronics - Miscellaneous Components industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has returned 1.1% over this period compared with the S&P 500’s appreciation of 18.9% and the broader sector’s rally of 26.09%.
Based on the forward 12-month price to earnings (P/E), a commonly-used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at 20.69X compared with the S&P 500’s 22.12X and the sector’s 27.02X.
In the past five years, the industry has traded as high as 22.68X and as low as 20.05X, with a median of 21.18X.
Fabrinet: This Zacks Rank #1 (Strong Buy) stock is benefiting from strong telecom revenues driven by increasing demand for data center interconnect products. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fabrinet shares have declined 7.1% in the year-to-date period. The Zacks Consensus Estimate for FN’s fiscal 2025 earnings has increased 2.3% to $10.31 per share in the past 30 days.
BWX Technologies: This Zacks Rank #2 (Buy) company is riding on strong demand for nuclear technologies in end markets like federal, clean energy and medical. The acquisition of A.O.T. expands BWX Technologies’ footprint in the special materials business. The pending buyout of Kinectrics will boost BWXT’s footprint in the commercial nuclear power business.
BWXT shares have dropped 6.6% year to date. The Zacks Consensus Estimate for 2025 earnings has been steady at $3.42 per share in the past 30 days.
OSI Systems: This Hawthorne, CA-headquartered company is a vertically integrated designer and manufacturer of specialized electronic systems and components. Its products are primarily utilized for critical homeland security, healthcare, defense and aerospace applications.
OSI is riding on its strong portfolio of security screening solutions. Its strong contract wins for mobile cargo, vehicle inspection, and advanced security inspection technology and services are major positives.
This Zacks Rank #2 company benefits from its strengthening optoelectronics business. OSI’s growing customer base across multiple industries bodes well for long-term prospects.
OSI Systems has returned 19.4% in the year-to-date period. The Zacks Consensus Estimate for OSIS’ fiscal 2025 earnings has been revised upward by a couple of cents to $9.22 per share over the past 30 days.
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