The Zacks Laser Systems and Components industry is suffering from pandemic-induced supply chain disruptions, including parts and labor shortages and delays in ocean freight and port congestion. The demand-supply mismatch is expected to persist in the near term, thereby hurting the prospects of the industry participants. Nevertheless, upbeat demand from electronics, semiconductors and healthcare end-markets is a major growth driver.
CyberOptics
CYBE
,
Lumentum
LITE
and
Cutera
CUTR
are well-positioned to benefit from these trends. Robust demand for high power continuous wave and pulsed laser for cutting and battery processing applications, growing demand for high-performance optical devices and ongoing adoption of cloud computing, autonomous driving, IoT and 5G are key catalysts for these industry participants.
Industry Description
The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, optical and photonic products, and scanning technology solutions. The key end markets are semiconductor, metrology, advanced communication and medical devices. Industry participants also provide high-precision 3D sensors and system products for inspection and metrology. Moreover, in the medical devices space, laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. The development of safe and effective aesthetic treatments has resulted in a well-established market for these procedures. The company also operates in the cyclical surface mount technology (SMT) and semiconductor capital equipment markets.
3 Laser Systems & Components Industry Trends to Watch Out For
Emerging Applications Driving Demand for Lasers
: The industry is benefiting from increasing demand for emerging applications like additive manufacturing, facial recognition, gesture recognition, LiDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. Notably, 3DS, the technology that allows users to create 3D printable objects, control games with body gestures and measure objects, is much in demand.
Laser-IoT Combination Supports Efficiency
: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. Notably, IoT-supported manufacturing equipment is far easier to update with firmware. The combination not only reduces costs but also increases flexibility and reliability manifold by enabling material handling capabilities through remote sources. Additionally, strong demand from semiconductor and allied markets, which are seeing a rapid shift toward production of micro and nano devices, is a positive for industry participants.
Supply-Chain Disruption Hurts Prospect
: Industry participants are suffering from pandemic-induced supply chain disruptions. Parts and labor shortages as well as delays in ocean freight and port congestion are hurting their ability to address customer needs. The demand-supply mismatch is expected to persist in the near term thereby hurting prospects of the industry participants.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #227, which places it in the bottom 8% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is 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 outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of 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 Feb 28, 2021, the industry’s earnings estimate for the current year has declined 60.7%.
Despite the gloomy outlook, there are few stocks worth watching in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Underperforms Broader Industry and S&P 500
The Zacks Laser Systems and Components industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 33% over this period against the S&P 500’s increase of 14.5% and the broader sector’s rally of 1.1%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 8.27X compared with the S&P 500’s 5.01X. It is also trading above the sector’s trailing 12-month P/S of 4.98X.
Over the last five years, the industry has traded as high as 12.44X, as low as 3.15X and at the median of 6.02X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
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3 Laser Stocks to Keep a Close Eye on
CyberOptics
: Shares of this Minneapolis, MN-based company have returned 45.2% year to date. This Zacks Rank #3 (Hold) company is a leading provider of sensors and inspection systems that provide process yield and throughput improvement solutions for the global electronic assembly and semiconductor capital equipment markets.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Solid adoption of CyberOptics’ high precision 3D Multi-Reflection Suppression (MRS) based optical sensors for inspection and metrology in key vertical markets like Surface Mount Technology (SMT) and semiconductor is a major growth driver. CyberOptics’ solutions boost customer yields, throughput and operating efficiency, thereby saving time and cutting down on expenses. The company has solid growth potential in the market for Micro LED inspection, advanced packaging and metrology.
The Zacks Consensus Estimate for CyberOptics’ current-year earnings has stayed at $1.57 per share over the past 30 days.
Price & Consensus: CYBE
Lumentum
: This San Jose, CA-based company is a well-known provider of optical and photonic products addressing a range of end-market applications, including Optical Communications and Commercial Lasers for manufacturing, inspection and life-science applications.
Lumentum is benefiting from strong customer demand for its communications products, which are essential to multi-year expansions in next-generation optical network capacity that are just beginning to be deployed. However, supply shortages are expected to hurt top-line growth in the near term.
The Zacks Consensus Estimate for Lumentum’s 2022 earnings has declined 4.8% to $5.79 per share over the past month. The Zacks Rank #3 stock has rallied 10.7% in the past year.
Price & Consensus: LITE
Cutera
: Based in Brisbane, CA, this Zacks Rank #3 company offers medical device products. The stock has declined 1% in the past year.
Cutera benefits from substantial Skincare revenues. Consumables sales growth remains strong, driven by the continued recovery of energy-based treatment volumes.
The consensus mark for Cutera’s fiscal 2022 earnings has been steady at 74 cents per share over the past 30 days.
Price & Consensus: CUTR
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