The swift progression of the digital age has spawned an amplified appetite for cutting-edge technologies. Given this heightened demand, robust tech stocks such as Encore Wire Corporation (WIRE), Knowles Corporation (KN), and Eltek Ltd. (ELTK) stand poised to harness the sector's expansion. Let's explore this phenomenon in depth.
Electronics play a crucial role in the contemporary era of rapid technological advancements. Electronic components facilitate communication, revolutionize healthcare, enable seamless transportation, and elevate entertainment, shaping industries and societies.
Although the U.S. manufacturing industry remains subdued, the overall outlook for component sales is positive. Experts anticipate electronic demand to rise from the fourth quarter of this year. Moreover, the Electronics Association IPC reported that its shipment index rose solidly in August and remains in expansionary territory.
Moreover, Gartner expects tech spending to expand substantially next year. Overall IT expenditure is forecasted to rise 8.8% to reach $5.14 trillion in 2024. On top of it, although device spending is expected to decline this year, it is set to increase by 6.9% to reach $748.15 billion next year.
According to a report from Contrive Datum Insights, the electronics industry is slated to sustain a robust growth trajectory with a projected 7.5% CAGR, ultimately reaching a staggering $4.99 trillion by the year 2030.
In light of these encouraging trends, let's delve into the fundamentals of the three Technology – Electronics stocks, commencing with the third-ranked stock.
Stock #3: Encore Wire Corporation (WIRE)
WIRE manufactures electrical building wires and cables. The company sells its products through independent representatives to wholesale distributors. It serves the residential, commercial, industrial, and renewable energy sectors.
On August 8, WIRE announced a dividend of two cents per share. This dividend is scheduled to be paid to stockholders on October 20, 2023. This reflects the ability of the company to pay back its shareholders.
For the fiscal second quarter that ended June 30, 2023, WIRE’s net sales amounted to $636.46 million, while gross profit stood at $166.15 million. Its operating income and net income came in at $127.48 million and $104.74 million, respectively.
Analysts expect WIRE’s revenue to increase 6.4% year-over-year to $2.72 billion for the fiscal year ending December 2024. Its EPS for the same year is expected to be $18.61. WIRE has an impressive surprise earnings history, as it surpassed the consensus EPS estimates in three of the four trailing quarters.
Shares of WIRE have gained 27.5% year-to-date and 54.7% over the past year to close the last trading session at $175.36.
WIRE’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
WIRE has an A grade for Value and Quality. It is ranked #9 in the 44-stock Technology – Electronics industry.
In addition to the POWR Ratings I’ve just highlighted, you can see WIRE’s ratings for Growth, Momentum, Stability, and Sentiment here.
Stock #2: Knowles Corporation (KN)
KN provides micro-acoustic microphones, balanced armature speakers, high-performance capacitors, and Radio Frequency (RF) filtering products, operating through three broad segments: Precision Devices (PD); Medtech & Specialty Audio (MSA); and Consumer MEMS Microphones (CMM).
On September 18, KN announced its acquisition of Cornell Dubilier, a high-quality film, electrolytic, and mica capacitors manufacturer, for $263 million. This move is expected to diversify and expand KN’s product portfolio while accelerating its transformation into an industrial technology company.
On August 30, Knowles Precision Devices, a division of KN, unveiled the MD Series, a range of medical-grade capacitors for implantable designs. The introduction of the products should add to the company’s existing revenue stream.
For the fiscal second quarter that ended June 30, 2023, KN’s revenues increased 19.9% from the previous quarter to $173 million, while its non-GAAP gross profit increased 33.6% sequentially to $72.70 million.
Its non-GAAP net earnings came in at $21.90 million, registering an increment of 329.4% from prior-quarter value, while non-GAAP EPS increased 360% sequentially to $0.23.
For the fiscal first quarter ending March 2024, KN’s EPS is expected to increase 325% year-over-year to $0.21. KN’s revenue is expected to grow 15.9% year-over-year to $167.25 million for the same quarter. Additionally, it topped the EPS estimates in each of the trailing four quarters.
The stock has increased 18.6% over the past year to close the last trading session at $14.62
It’s no surprise that KN has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. It has a B grade for Growth, Sentiment, and Quality. Within the same industry, it is ranked #8.
In addition to the POWR Ratings we’ve stated above, we also have KN’s ratings for Value, Momentum, and Stability. Get all KN ratings here.
Stock #1: Eltek Ltd. (ELTK)
Based in Petah Tikva, Israel, ELTK provides an array of tailored Printed Circuit Board (PCB) solutions encompassing rigid, double-sided, and multi-layer variants alongside flexible circuit boards.
On September 19, ELTK announced that it had received a purchase order of $2.9 million from an existing customer to be supplied over a period of 16 months starting from February 2024. This reflects on the company’s product development process and could be beneficial for it.
On June 27, ELTK declared the successful repayment of its $1.7 million bank debt, leaving the company with a cash balance of $7 million. Additionally, ELTK opted to accelerate investments in production equipment, signaling a commitment to enhancing operational capabilities.
For the second quarter that ended June 30, ELTK’s revenues increased 21.5% year-over-year to $11.04 million. Its non-GAAP EBITDA grew 114.3% from the prior year’s period to $1.70 million. Furthermore, the company’s net income and EPS rose 74.4% and 69.2% year-over-year to $1.31 million and $0.22, respectively.
The company’s revenue for the next fiscal year (ending December 2024) is expected to increase 10% year-over-year to $51.31 million. Similarly, analysts expect ELTK’s EPS for the same period to come in at $1.21, up 12.6% from the previous year.
Over the past year, the stock has gained 146%, closing the last trading session at $8.83. It has also gained 114.8% year-to-date.
ELTK’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
ELTK has an A grade for Quality and a B for Growth, Momentum, and Sentiment. It is ranked first out of 44 stocks within the same industry. Click here to access additional ELTK ratings for Value and Stability.
What To Do Next?
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WIRE shares were trading at $178.85 per share on Wednesday afternoon, up $3.49 (+1.99%). Year-to-date, WIRE has gained 30.07%, versus a 12.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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