The Zacks Instruments - Scientific industry comprises companies offering scientific instruments, analytical tools, diagnostic solutions, precision instruments & services, and test & sensor solutions.
The primary end-markets served by the industry participants are life science research in academia, medical schools and government, pharmaceuticals and biotechnology, microbiology and diagnostics, nanotechnology, and materials science research. A few companies also serve the food and nutritional safety, biochemical, and industrial space.
Most of the industry participants are under stringent regulatory scrutiny worldwide. They have to adhere to the U.S. Food and Drug Administration (FDA) norms as well as rules set by other global regulatory bodies for serving highly regulated end-markets like life sciences and pharma.
Here are the three major themes in the industry:
- The industry is benefiting from strong end-market demand, particularly from life science, pharmaceutical and academic markets. Increasing demand for generic drugs and biosimilars is driving growth for scientific tool and apparatus providers. Additionally, pharma companies are focusing on rapidly growing areas like proteomics and phenomics, biopharma and applied, microbiology and diagnostics, and neuroscience and cell microscopy, which creates significant demand for the instruments provided by industry participants.
- Socioeconomic factors like an aging demography and increasing environmental regulations are driving demand for scientific measurement solutions. Moreover, robust worldwide healthcare spending is a major growth driver. The $2-billion increase in the National Institute of Health (NIH) budget for fiscal 2019 also bodes well for this industry. Additionally, a spending panel at the U.S. House of Representatives has proposed a $2-billion raise in the NIH budget to $41.1 billion for fiscal 2020, beginning October 2019. The proposal contradicts President Donald Trump’s 12% cut in NIH budget for fiscal 2020.
- Further, the industry is gaining from increasing exposure to developing economies like China and India. Prospects in China are huge as regulators are attempting to raise the country’s biopharma industry to global standards. Moreover, efforts to improve the drug development process and production quality in the country are noteworthy. These factors are resulting in strong demand for instruments. However, the ongoing trade war between the United States and China doesn’t bode well for some of the industry participants.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Instruments - Scientific industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #110, which places it at the top 43% 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 solid 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 positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.
Before we present a few 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.
Industry Outperformed on Shareholder Returns
The Zacks Instruments – Scientific industry has outperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite over the past year.
The industry has returned 6.3% over this period compared to the S&P 500’s rise of 1% and the broader sector’s decline of 0.2%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing scientific instrument stocks, we see that the industry is currently trading at 20.98X compared with the S&P 500’s 16.82X and the Zacks Computer and Technology sector’s 20.04X.
Over the last five years, the industry has traded as high as 25.85X, as low as 17.65X and at the median of 21.13X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Consider
Solid emerging market prospects, increasing spending on health care driven by an aging demography and continued innovation in the pharma and life sciences end-market are key catalysts for this industry.
Currently, none of the stocks in the Zacks Instruments – Scientific industry flaunts a Zacks Rank #1 (Strong Buy) or Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.
Mettler-Toledo International (MTD): Headquartered in Polaris Parkway, Columbus, the weighing instruments provider has returned 16.5% in the past year. Moreover, the Zacks Consensus Estimate for the company’s earnings stayed flat at $22.71 for the current year over the last seven days.
Price and Consensus: MTD
PerkinElmer (PKI): Waltham, MA-based PerkinElmer has lost 5.5% in the past year. The Zacks Consensus Estimate for the company’s current-year earnings stayed put at $4.04 over the last seven days.
Price and Consensus: PKI
Waters Corporation (WAT): Milford, MA-based Waters has returned 10.3% in the past year. The consensus estimate for the company’s earnings has remained steady at $9.01 for the current year over the last seven days.
Price and Consensus: WAT
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