Despite the macroeconomic and geopolitical concerns, the technology hardware industry is experiencing solid growth with continued digitization and adoption of emerging technologies.
Given this backdrop, it could be wise to buy fundamentally strong hardware stocks Seiko Epson Corporation (SEKEY), Dell Technologies Inc. (DELL), and Panasonic Holdings Corporation (PCRFY).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech hardware industry is well-positioned to grow.
The industry is evolving as enterprises increasingly use technology for customer engagement, innovation, and efficiency. Advanced hardware complements software by providing essential physical infrastructure. Investing in advanced hardware enhances productivity and efficiency for seamless operations.
Gartner expects global IT spending to reach $4.69 trillion in 2023, increasing 3.5% year-over-year. While spending on devices is anticipated to decrease by 10% this year, it is projected to grow 4.8% year-over-year to $722.47 billion in 2024.
Furthermore, the fast-paced electronics innovation, driven by the Internet of Things (IoT), AR & VR, and 5G, is spurring demand for advanced hardware solutions. The electrical and electronics market is projected to grow at a CAGR of 7.5% to reach $4.99 trillion by 2027.
The PC Accessories Market is projected to grow at a CAGR of 12.1% to reach $43.61 billion by 2028.
Considering these conducive trends, let’s analyze the fundamentals of the three Technology - Hardware picks, beginning with the third choice.
Stock #3: Seiko Epson Corporation (SEKEY)
Headquartered in Suwa, Japan, SEKEY and its subsidiaries develop, manufacture, sell, and provide services for products in printing solutions, visual communications, manufacturing-related and wearables, and other businesses. It operates through three segments: Printing Solutions, Visual Communications, and Manufacturing-related and Wearables segments.
On October 12, 2023, SEKEY’s group company, Epson Atmix Corporation, announced the investment of ¥5.50 billion ($36.58 million) in plant and equipment to construct a new factory, a sustainable metal refinery in Hachinohe, Japan, aimed at recycling waste metal to produce raw materials for metal powder.
It is expected to begin operations in June 2025, contributing to Epson's sustainability and resource conservation goal.
In terms of the trailing-12-month net income margin, SEKEY’s 5.09% is 150.2% higher than the 2.03% industry average. Likewise, its 9.24% trailing-12-month Return on Common Equity is 810% higher than the industry average of 1.01%. Additionally, its 4.98% trailing-12-month Return on Total Assets is significantly higher than the industry average of 0.02%
SEKEY’s revenues for the six months ended September 30, 2023, increased 0.9% year-over-year to ¥638.53 billion ($4.25 billion). Its profit from operating activities stood at ¥27.93 billion ($185.74 million). In addition, the company’s profit for the period attributable to owners of the parent company and EPS came in at ¥27.48 billion ($182.74 million) and ¥82.87, respectively.
Street expects SEKEY’s revenue for the fiscal year ending March 31, 2024, to increase 27.5% year-over-year to $9.08 billion. The stock has gained 2.1% year-to-date to close the last trading session at $7.15.
SEKEY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Stability, and Quality. Within the B-rated Technology - Hardware industry, it is ranked #8 out of 40 stocks. To see SEKEY’s Growth, Momentum, and Sentiment ratings, click here.
Stock #2: Dell Technologies Inc. (DELL)
DELL designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments: Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
On July 19, 2023, DELL announced its definitive agreement to acquire Moogsoft, an AI-driven provider of intelligent monitoring solutions for DevOps and ITOps. This enhances DELL’s AIOps capabilities and aligns with its "multicloud by design" strategy.
In terms of the trailing-12-month Capex/Sales, DELL’s 3.02% is 24.8% higher than the 2.42% industry average. Likewise, its 5.54% trailing-12-month EBIT margin is 12.8% higher than the 4.91% industry average. Additionally, its 12.86% trailing-12-month Return on Total Capital is 420.5% higher than the 2.47% industry average.
DELL’s total net revenue for the second quarter ended August 4, 2023, came in at $22.93 billion. Its non-GAAP operating income rose 1.3% year-over-year to $1.98 billion. The company’s non-GAAP net income increased 1.3% year-over-year to $1.28 billion. In addition, its non-GAAP EPS came in at $1.74, representing an increase of 3.6% year-over-year.
Analysts expect DELL’s EPS for the quarter ending January 31, 2024, to increase 0.3% year-over-year to $1.80. Its revenue for the quarter ending April 30, 2024, is expected to increase 6.8% year-over-year to $22.35 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 70.7% to close the last trading session at $64.51.
It’s no surprise that DELL has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth and Value. Within the same industry, it is ranked #5. In total, we rate DELL on eight different levels. Beyond what we stated above, we also have given DELL grades for Momentum, Stability, and Quality. Get all the DELL ratings here.
Stock #1: Panasonic Holdings Corporation (PCRFY)
Headquartered in Kadoma, Japan, PCRFY researches, develops, manufactures, sells, and services various electrical and electronic products worldwide. It operates through five segments: Lifestyle, Automotive, Connect, Industry, and Energy.
In terms of the trailing-12-month Return on Total Assets, PCRFY’s 4.78% is 22.8% higher than the 3.89% industry average. Its 3.70% trailing-12-month EBIT margin is 49.2% higher than the industry average of 7.28%. Likewise, its 4.95% trailing-12-month net income margin is 14.2% higher than the industry average of 4.33%.
PCRFY’s sales for the first quarter ended June 30, 2023, rose 2.8% year-over-year to ¥2.03 trillion ($13.50 billion). The company’s operating profit rose 41.9% year-over-year to ¥90.37 billion ($600.97 million). Its net profit attributable to PCRFY rose 310.5% year-over-year to ¥200.93 billion ($1.34 billion). Also, its EPS came in at ¥86.06, representing an increase of 310.4% year-over-year.
For the quarter ended September 30, 2023, PCRFY’s EPS is expected to increase 29.7% year-over-year to $0.22. Its revenue for the fiscal year ending March 31, 2024, is expected to increase significantly year-over-year to $56.81 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 32.4% to close the last trading session at $9.64.
PCRFY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability. It is ranked #2 in the Technology – Hardware industry. To see PCRFY’s Growth, Momentum, Sentiment, and Quality ratings, click here.
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DELL shares were trading at $66.02 per share on Friday afternoon, up $1.51 (+2.34%). Year-to-date, DELL has gained 69.02%, versus a 9.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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