Chicago, IL – February 27, 2025 – Today, Zacks Equity Research discusses Cognex CGNX and Itron ITRI.
Industry: Electronics Testing
Link: https://www.zacks.com/commentary/2422086/2-electronics-testing-stocks-to-watch-from-a-challenging-industry
The Zacks Electronics – Testing Equipment industry has been suffering from a challenging global macroeconomic environment, end-market volatility, unfavorable forex and growing geo-political tensions. The sluggish automotive sector, due to declining investments in electric vehicles, has been a major headwind for industry participants.
The factory automation end market has remained weak, and the conservative capital expenditure spending trend across consumer electronics is a headwind. However, industry players like Cognex and Itron are benefiting from 5G-related growth opportunities, strengthening automation drive and the Industry 4.0 momentum. The increasing adoption of software-enabled testing instruments and devices is another positive.
The Zacks Electronics – Testing Equipment industry comprises companies offering advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end markets served by this industry are consumer, automobile, industrial, aerospace and defense, healthcare, semiconductors and communications, to name a few. Industry participants have been making technological advancements to gain traction among semiconductors, vehicles, machinery, smartphones and medical device manufacturers, who are constantly increasing their spending on electronic components.
Solid Adoption of Motion Control & Test Systems is Positive: The rising utilization of precision motion-control solutions and automatic test systems in motion-control devices and testing products, particularly in the aerospace, automation, medical and military markets, is an upside. Commercial motor and autonomous vehicles will likely continue to hike the demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings.
Synergies in the Pharmaceutical Market Are Tailwinds: The industry has been steadily gaining from the increasing use of electrical instruments and software to interrogate the biological properties of molecules and cells in clinical and medical science research. The rapid adoption of the solutions is anticipated to drive growth for participants in the pharmaceutical end market.
Agilent is capitalizing on the trend and gaining traction in the life science research space. The pharmaceutical market holds immense prospects, courtesy of the growing utilization of electronic testing equipment. Rising demand for RF test equipment by medical device manufacturers is another uptrend.
5G Prospects Act as Boons: The growing deployment of 5G holds near-term promises for the industry players. Another major positive is an uptick in demand for 5G test solutions required for 5G deployment. In addition, the ongoing trend of migrating infrastructure workloads to the cloud, which continues to bolster the demand for high-speed Internet services, bodes well for electronic companies associated with 5G.
The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by efforts to reinforce the 5G strength.
Macroeconomic Headwinds Pose Concerns: Due to the challenging macroeconomic scenario, enterprises are reluctant to sign multi-year deals worldwide. These trends do not bode well for the industry participants.
The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #201 at present, which places it in the bottom 19% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, 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. The industry’s earnings estimates for 2025 have moved south by 3.4% since July 31, 2024.
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 – Testing Equipment Industry has underperformed the S&P 500 and its sector over the past year. The industry has declined 0.8% over this period against the S&P 500’s appreciation of 18.4% and the broader sector’s return of 18.6%.
Based on the forward 12-month price-to-earnings ratio (P/E), a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 23.59X, higher than the S&P 500’s 22.1X and lower than the sector’s 25.78X.
Over the past five years, the industry has traded as high as 25.97X and as low as 22.79X, with a median of 23.51X.
Itron: This Liberty Lake, WA-based entity is gaining from rising trends in electrification, gas safety, energy transition, grid edge digitalization and water efficiency. Increasing demand for smart water meters and electric solutions is contributing well. Strength in the Networked Solutions business, bolstered by new projects and ongoing large-scale deployments, augurs well.
This Zacks Rank #3 (Hold) company is riding on new product launches and solid uptake of the Grid Edge Intelligence solution. Higher recurring revenue streams, services and software are expected to boost the Outcomes segment’s performance. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Itron have declined 6.3% year to date. The Zacks Consensus Estimate for 2025 earnings has been revised a penny downward in the past 30 days to $4.84 per share, indicating a year-over-year decline of 13.88%.
Cognex: This Natick, MA-based company’s strategy of infusing Artificial Intelligence (AI) into its machine vision products and successful integration of Moritex bodes well for its prospects.
CGNX launched the industry’s first AI-enabled 3D smart camera, the In-Sight L38 and the modular vision tunnel portfolio, which features the powerful DataMan 380 barcode reader that uses improved decoding and is optimized for logistics applications.
Shares of this Zacks Rank #3 company have declined 8.5% year to date. The Zacks Consensus Estimate CGNX’s 2025 earnings has declined 5.4% over the past 30 days to 88 cents per share, indicating year-over-year growth of 18.92%.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any 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 of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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