2 Instruments Stocks Likely to Benefit From Industrial Digitization

Core Insights - The Zacks Instruments – Control industry is poised for growth due to a focus on energy-efficient production processes and integrated software systems, driven by the demand for advanced technology to replace outdated industrial controls with automated solutions [1][2]. Industry Overview - The industry includes manufacturers of precision and specialty motion-control components and systems, providing solutions for flow measurement, control, and communication across various sectors [3]. - Key products include those for fuel, combustion, fluid actuation, electronic applications, and energy control, with some firms also offering HVAC products and water reuse solutions [3]. Growth Drivers - The industry's growth is primarily fueled by the emphasis on digitized technologies, such as the Industrial Internet of Things, and the increasing demand for process automation and safety systems [4]. - The adoption of process instrumentation equipment enhances product quality and reduces emissions, with regulatory compliance further driving growth [4]. - North America is expected to lead in automation adoption, supported by rising investments in energy infrastructure and favorable government policies [6]. Challenges - Material cost inflation and rising transportation costs are negatively impacting profit margins, compounded by geopolitical tensions affecting raw material prices [5]. - High customer inventory levels and a conservative approach to high-value orders are additional headwinds, with competition intensifying in the core business [5]. Market Performance - The Zacks Instruments – Control industry has underperformed compared to the S&P 500 and the broader Zacks Computer and Technology sector, with a growth of 2.7% against 20.2% and 27.9% respectively over the past year [9]. - The industry currently holds a Zacks Industry Rank of 54, placing it in the top 22% of over 250 Zacks industries, indicating positive near-term prospects [7][8]. Valuation Metrics - The industry has a trailing 12-month EV/EBITDA ratio of 8.5X, significantly lower than the S&P 500's 18.87X and the sector's 19.71X, suggesting potential undervaluation [12]. Company Highlights - Sensata Technologies Holding plc (ST): A global industrial technology company focused on sensor-based solutions, with a long-term earnings growth expectation of 7.5% and an average earnings surprise of 4.2% over the last four quarters. It holds a Zacks Rank of 2 (Buy) [15][19]. - Thermon Group Holdings, Inc. (THR): Provides engineered industrial process heating solutions, with a recent acquisition enhancing its market reach. It has delivered an average earnings surprise of 16.5% in the trailing four quarters and also holds a Zacks Rank of 2 (Buy) [18][19].