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3 Instruments Stocks to Watch From a Challenging Industry

The coronavirus pandemic has created unique opportunities for the Zacks Instruments - Scientific industry participants — Mettler-Toledo International MTD, PerkinElmer PKI and Waters WAT. These companies are gaining from growing testing needs of newer biological drugs, ever-increasing complexity in molecular structure and rising instrument orders across the globe. Increasing healthcare spending is a key catalyst, driven by aging demography, and continued innovation in the pharma and life sciences end-markets. Higher demand for generic drugs and biosimilars drives growth for scientific tool and apparatus providers. However, the industry is suffering from the lingering effects of COVID-19 and the resultant lockdown in China.

Industry Description

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 spaces. Most 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.

3 Trends Shaping the Instruments-Scientific Industry's Future

End-Market Demand Strong: The industry is benefiting from strong end-market demand, particularly from the life science, pharmaceutical and academic markets. Increasing demand for generic drugs and biosimilars is driving growth for scientific tool and apparatus providers. Pharma companies are focused on rapidly growing areas like proteomics and phenomics, biopharma and applied, microbiology and diagnostics, and neuroscience and cell microscopy. This creates significant demand for the instruments provided by the industry participants.

Aging Demography Driving Spending: Socioeconomic factors like aging demography and increasing environmental regulations are fueling the demand for scientific measurement solutions. Robust worldwide healthcare spending is another major growth driver.

Emerging Market Prospects Solid: The industry is gaining from increasing exposure to developing economies like China and India. Prospects in China are huge as regulators attempt to raise the country’s biopharma industry to global standards. Efforts to improve the country’s drug development process and production quality are noteworthy. These factors result in strong demand for instruments.

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Zacks Industry Rank Indicates Dim Prospects

The Zacks Instruments - Scientific industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #166, which places it at the bottom 34% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is 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 positioning 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, analysts are pessimistic about this group’s earnings growth potential. Since Oct 30, 2021, the industry’s 2022 earnings estimates have moved up 8.2%.

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 Beats Sector and S&P 500

The Zacks Instruments – Scientific industry has outperformed the broader Zacks Computer and Technology sector but has lagged the S&P 500 composite over the past year.

The industry has declined 13.9% over this period compared with the S&P 500’s fall of 21.2% and the broader sector’s slip of 35.5%.

One-Year Price Performance

Industry's Current Valuation

On the basis of the 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 27.44X compared with the S&P 500’s 17.69X and the Zacks Computer and Technology sector’s 21.29X.

Over the last five years, the industry has traded as high as 36.31X, as low as 21.24X and at the median of 25.46X, as the chart below shows.

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

 

 

 

 

 

 

 


3 Scientific Instruments Providers to Watch

Mettler-Toledo: This Zacks Rank #3 (Hold) company is benefiting from the solid momentum across its laboratory and industrial segments.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mettler-Toledo’s strengthening presence in the Americas, Europe, Asia and the Rest of the World is a positive. Portfolio strength, cost-cutting efforts, robust sales and marketing strategies, benefits from investments in Spinnaker sales, and field resources are contributing well. A strong core industrial business is encouraging. Solid demand across pharmaceutical and life science markets is another tailwind.

Shares of this Polaris Parkway, Columbus, OH-based company have lost 13.7% in the past year. The Zacks Consensus Estimate for Mettler-Toledo’s current-year earnings has declined by a penny to $39.02 per share in the past 30 days.

Price and Consensus: MTD

 

 

PerkinElmer: The Waltham, MA-based company is benefiting from the rising use of AI in healthcare. PerkinElmer introduced image analysis in the high-content screening and immunodiagnostic businesses to better determine grain quality in the food business.

PerkinElmer is applying AI in its services business to help to optimize its customers' laboratory productivity across all of its business segments — DAS and Diagnostics.

PerkinElmer currently has a Zacks Rank #3. The Zacks Consensus Estimate for PerkinElmer’s current-year earnings has increased 1.8% to $7.90 per share in the past 30 days. The stock has lost 27% in the past year.

Price and Consensus: PKI

 

 

Waters: The Milford, MA-based company is an analytical instrument manufacturer. It offers practical and sustainable products for laboratory-dependent organizations.

Waters is gaining from growth in its top global pharma accounts. Solid momentum across new product lines like BioAccord and Cyclic IMS remains positive. The company’s strengthening presence in the industrial and pharmaceutical end markets is a tailwind.

Waters currently has a Zacks Rank #3. The Zacks Consensus Estimate for Waters’ current-year earnings has declined by a penny to $11.92 per share over the past 30 days. WAT’s shares have moved down 6.1% in the past year.

Price and Consensus: WAT

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

MettlerToledo International, Inc. (MTD) : Free Stock Analysis Report

Waters Corporation (WAT) : Free Stock Analysis Report

PerkinElmer, Inc. (PKI) : Free Stock Analysis Report

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Zacks Investment Research