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BMI, TRNS, WTS - >>> Zacks Industry Outlook Watts Water Technologies, Badger Meter and Transcat


Zacks Equity Research

August 8, 2024


https://finance.yahoo.com/news/zacks-industry-outlook-watts-water-083000714.html


3 Instruments Stocks Set to Ride on Digitized Technology Demand

The Zacks Instruments – Control industry is likely to benefit from the diligent focus on energy-efficient production processes and integrated software systems. Rising demand for state-of-the-art technology for replacing legacy industrial control systems with automated products is expected to aid growth.

However, elevated customer inventory levels amid a challenging geopolitical environment might hurt the process automation and instrumentation market. Nevertheless, Watts Water Technologies, Inc., Badger Meter, Inc. and Transcat, Inc. are likely to gain from high digitized technology demand, greater emphasis on energy efficiency, focus on cost-reduction initiatives and broad-based endorsement of industrial automation and optimum resource utilization.

Industry Description

The Zacks Instruments – Control industry comprises manufacturers of precision and specialty motion-control components and systems used in a wide range of industries. These companies deliver sophisticated flow measurement, control and communication solutions for air, water and other forms of gas and liquid used for commercial and residential purposes. The companies offer an array of products for fuel, combustion, fluid, actuation, electronic applications, energy control and optimization, particularly for the process industry. Some industry players offer heating, ventilation and air conditioning products. These include water heaters and electric heating systems for under-floor radiant applications for boiler manufacturers and alternative energy control packages. Few firms provide water reuse products, consisting of drainage and rainwater harvesting solutions.

What's Shaping the Future of Instruments - Control Industry

Thrust on Industrial Automation: Greater focus on increased adoption of automation across all industry verticals and higher investments in new technologies are expected to drive growth over the next few years. North America is expected to continue dominating the market in terms of adopting automation. Rising infrastructural investments in the energy and power sector, increasing demand for organic food and nutritional beverages, and favorable government policies are aiding growth. The pharmaceutical industry's process automation and instrumentation market is also growing due to low-cost factors and an evolving regulatory environment. Focus on high-quality equipment indicates progressive buyer maturity and willingness to partner with process control industry players.

Solid Traction From Green Fuels: The industry participants are increasingly gaining traction from solid demand for power generation, especially in Asia, and continued requirement for backup power for data centers. Higher demand across transportation and power generation markets, especially on-highway natural gas truck business in China, has led to healthy growth momentum. In addition, higher demand for alternative fuels across the marine industry and solid impetus in the global marine market brought on by higher utilization and rising shipbuilding rates are likely to be long-term growth drivers.

Margin Woes Persist: Material cost inflation, resulting from constant inflationary pressures, has been affecting industry players’ margins. Transportation costs are also on the rise. Moreover, high raw material prices due to inflation, escalating Middle East tensions, the prolonged Russia-Ukraine war and the consequent economic sanctions against the Putin regime have affected the production schedules of various firms. While the companies are focused on improving their operating performances, the inability to obtain adequate supplies of raw materials and product parts at favorable prices is likely to hurt their businesses. With firms being unable to pass on the entire increase in raw material prices to customers due to stiff competition, profitability is mostly on the wane. The companies primarily operate in markets that are susceptible to high competitive pressures and are under constant threat from low-cost suppliers, primarily based in China. Due to an international footprint, these firms are further exposed to foreign exchange fluctuations that affect their cash flows. Changes in competitive conditions, including the availability of the latest products and services, the introduction of distribution channels and changes in OEM and aftermarket pricing, are likely to hamper operations and affect sales for industry participants.

Digitized Technologies at the Core: The industry’s growth is driven mainly by the emphasis on digitized technologies in manufacturing activities, such as the Industrial Internet of Things. The demand for process automation, instrumentation products, safety automation systems and multivariable pressure transmitters for the fast-track manufacturing process is likely to fuel long-term growth opportunities. The use of process instrumentation equipment offers a host of benefits, including improvement in the quality of the product and emission reduction. Therefore, the rapid adoption of technology across various industries and growing regulation and compliance requirements will continue to be major growth drivers. In addition, field instruments play a significant role in process control by measuring the key elements, such as temperature, pressure, flow and level, in process industries such as chemicals, mining and pharmaceuticals. These include transmitters that primarily measure the pressure, flow, temperature, level and humidity of liquids and gases, which are essential for achieving optimum productivity. A differentiated product offering gives greater opportunities for companies to strengthen their market positions.

3 Instruments Control Stocks to Keep an Eye on

Watts Water (WTS) : Headquartered in North Andover, MA, the company designs, manufactures and sells various water safety and flow control products to promote safety, energy efficiency and water conservation for commercial and residential buildings. It is benefiting from aggressive cost-reduction actions, along with a strong balance sheet. It is focused on enhancing organic growth, driving margin expansion and reinvesting in productivity initiatives. Watts Water aims to launch smart and connected products, which are likely to provide it with further differentiation in the marketplace. This Zacks Rank #3 (Hold) stock has a VGM Score of B. It has a long-term earnings growth expectation of 8% and delivered an earnings surprise of 11.7%, on average, in the trailing four quarters. The Zacks Consensus Estimate for current and next-year earnings has been revised 10.3% and 6.6% upward, respectively, over the past year.

Badger Meter (BMI) : Headquartered in Milwaukee, WI, the company provides flow measurement, control and communications solutions, serving water and gas utilities, municipalities and industrial customers worldwide. Its products measure water, oil, chemicals and other fluids, and are known for accuracy, long-lasting durability and providing valuable and timely measurement data. With its industry-leading ORION Cellular endpoints, along with communication and software technologies, Badger Meter is focused on creating robust digital solutions to operationalize real-time data into actionable insights. Its BEACON software-as-a-service offering facilitates the collection and analysis of data within the distribution network to improve operational awareness. The Zacks Consensus Estimate for current and next-year earnings for the stock has been revised 31% and 36.1% upward, respectively, over the past year. The stock has gained 14.5% in the past year. It has a long-term earnings growth expectation of 17.9% and delivered an earnings surprise of 12.9%, on average, in the trailing four quarters. Badger Meter sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Transcat (TRNS): Headquartered in Rochester, NY, Transcat is a leading provider of accredited calibration, repair, inspection and laboratory instrument services. It is focused on providing best-in-class services and products to pharmaceutical, biotechnology, medical device and other FDA-regulated businesses, aerospace and defense, and energy and utilities. The buyouts of Complete Calibrations provide Transcat with a local calibration presence to support the robust and growing life science market in Ireland, while the acquisition of Cleveland, OH-based e2b Calibration will likely help it strengthen its presence across the United States and Canada. The stock has gained 21.8% over the past year. It delivered an earnings surprise of 33.3%, on average, in the trailing four quarters and currently carries a Zacks Rank #2 (Buy).

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