2 Office Equipment Stocks to Watch in a Booming Industry

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The Zacks Office automation and equipment the industry is suffering from supply chain disruptions as well as component shortages. Macroeconomic slowdown, high inflation rate and increased price competition are hurting industry players. Nevertheless, participants like cannon CAJ and Seiko Epson SEKEY is benefiting from the growing demand for medical and industrial equipment systems as well as the lower middle class for printers amid continued demand for working from home. 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 communication devices, which bodes well for these companies.

Description of the industry

The Zacks office automation and equipment industry includes companies that provide products and services related to e-commerce, shipping, digital delivery, printing, digital cameras, healthcare and industrial enterprises. Industry participants are located primarily in Japan and the United States. The industry has changed rapidly with advances in the internet and printing technology. The shift in customer preference from monochrome to color products and from hardware to services and solutions has been remarkable. Companies like Canon are launching new full-frame mirrorless products amid falling demand for SLR cameras. Industry participants cater to a broad market ranging from small home offices (SOHO) and small and medium enterprises (SMB) to large enterprises. The trend of working and learning from home has been beneficial for industry participants.

3 trends shaping the future of the office automation and equipment industry

Hybrid work to meet demand: Growing preference for the hybrid work model is driving demand for home and office printers. Hybrid working essentially means an increased presence in the office compared to full-fledged remote working. Industry players expect a recovery in print volume, thanks to the economic reopening and rising office footfall.

Supply chain constraints hurt growth: Companies in the sector are suffering from production and supply chain constraints. Inflation and fears of an economic slowdown are major headwinds for industry players. Additionally, the increased supply of products from local manufacturers, along with their low-cost alternatives, is forcing industry players to cut prices. This eats away at the bottom line of industry participants.

Sluggish demand for office equipment Mars Prospects: Weak demand for copiers and office equipment due to the increasing adoption of smartphones and portable devices has hurt the growth of the industry. Heavy investments in technology to innovate and customize products specific to customer needs weigh on margins. In addition, the product life cycles being short, the investments in research and development increase.

Zacks’ Industry Rankings Indicate Bright Prospects

The Zacks office automation and equipment industry is housed within the Zacks set IT and technology sector. It carries a Zacks Industry Ranking of #92, which places it in the top 37% of over 250 Zacks industries.

That of the group Zacks Industry Ranking, which is essentially the average of the Zacks Ranking of all member stocks, indicates a bright near-term outlook. 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 a positive earnings outlook for the constituent companies overall. Looking at revisions to overall earnings estimates, it appears analysts are optimistic about the earnings growth potential of this group. Since Sept. 30, 2022, industry earnings estimates for the current year have shifted 24.8% north.

But before presenting these stocks, it is worth taking a look at the industry’s shareholder returns and current valuation.

Industry outperforms sector and S&P 500

The Zacks office automation and equipment industry has outperformed the Zacks S&P 500 composite and its own sector over the past year.

The industry is down 3.8% during this period compared to the 29.7% drop in the Zacks IT and Technology sector and the 14.1% drop in the S&P 500.

Year-over-year price performance

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 industry is currently trading at 10.06X versus 17.07X of the S&P 500 and 20.98 for the sector. X.

Over the past five years, the industry has traded as high as 24.13X and as low as 9.19X, recording a median of 15.28X, as seen in the chart below.

Forward 12-Month Price-to-Earnings (P/E) Ratio

2 stocks to watch right now

cannon: This Zacks Rank #3 (Hold) is suffering from supply chain issues which should now delay the resumption of printing equipment production volume. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In addition, a fragile economic recovery, the negative impact of the Russian-Ukrainian conflict and higher levels of inflation are significant risks for Canon.

However, Canon’s focus on expanding its new businesses – industrial medical equipment and commercial printing – should drive long-term growth.

Canon, based in Tokyo, Japan, has lost 4.33% since the start of the year. Zacks’ consensus estimate for its current-year earnings fell 1.9% to $2.06 per share over the past 30 days.

Pricing and Consensus: CAJ

Seiko Epson: Seiko, based in Suwa, Japan, also has a Zacks rank No. 3. The company is benefiting from strong demand for high-capacity ink tank printers, ink cartridge printers, projectors and robots. Additionally, its growing footprint in commercial and industrial printing is remarkable.

However, macroeconomic headwinds and supply chain constraints are expected to weigh on near-term profitability.

The stock has lost 16.8% since the start of the year. The Zacks consensus estimate for Seiko’s earnings for the current year has been flat at 80 cents per share for the past 30 days.

Pricing and Consensus: SEKEY

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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