The tech industry's rapid growth drives increased demand for IT hardware across various sectors. Therefore, in this article, I have evaluated the fundamentals of three quality tech stocks, Seiko Epson Corporation (SEKEY), Daktronics, Inc. (DAKT), and Panasonic Holdings Corporation (PCRFY), which could be better buys than Dell Technologies Inc. (DELL). Our proprietary rating system rates SEKEY, DAK, and PCRFY an A (Strong Buy).
The computer hardware market is set to gain substantially from increased investments in smart city projects worldwide. As governments prioritize smart city development, a significant surge in demand for computer hardware solutions is expected. The computer hardware market is expected to grow at a CAGR of 6.6% to reach $909.80 billion in 2027.
Moreover, the swift expansion of emerging technologies such as the Internet of Things (IoT) and blockchain creates fresh prospects for IT service providers. In addition, urbanization has fueled the demand for advanced and aesthetically appealing tech wearables that offer multiple features and convenience.
The Smart Wearable market is expected to grow from $70.50 billion in 2023 to $171.66 billion by 2028 at a CAGR of 19.5%.
However, leading tech company DELL faces challenges, with a 13% year-over-year decline in total revenue to $22.93 billion in the fiscal second quarter ending August 4, 2023. Its operating income decreased 8% from the previous-year quarter to $1.17 billion. The company reported a non-GAAP net income of $1.28 billion and $1.74 per share.
Moreover, its trailing-12-month gross profit and levered FCF margins of 23.36% and 0.42% are lower than industry averages of 48.66% and 7.20%.
Also, the stock has a 24-month beta of 1.11, indicating volatility. Its net income and EPS have declined at a CAGR of 3.2% and 2.1% over the past three years.
Furthermore, Barclays Plc (BCS) downgraded DELL to Underweight from Equal Weight with an unchanged price target of $53. The firm cites valuation for the downgrade following the stock's recent run-up.
So, let us examine the fundamentals of the top three stocks in the Technology - Hardware industry, starting with the third in line.
Stock #3: Seiko Epson Corporation (SEKEY)
Headquartered in Suwa, Japan, SEKEY develops, manufactures, sells, and provides products for 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.
SEKEY’s trailing-12-month EBIT and net income margins of 6.20% and 5.09% are higher than the industry averages of 4.51% and 2.03%.
SEKEY’s net income and EPS have grown at a CAGR of 111.6% and 113.6% over the past three years.
On September 11, 2023, SEKEY and Loftware announced that they had partnered to integrate Epson ColorWorks printers with Loftware's NiceLabel Cloud platform. This integration allows businesses to print directly from NiceLabel Cloud to Epson ColorWorks cloud-connected printers, eliminating the need for a locally connected PC.
The collaboration reflects a commitment to innovative labeling solutions to enhance business efficiency and agility in the era of ERP cloud-based solutions.
On September 7, SEKEY introduced Label Boost™ software, designed to enable businesses to enhance their shipping labels by adding full-color coupons, targeted ads, secondary labels, and dynamic content.
Compatible with most Epson ColorWorks® printers, this software offers innovative ways for companies to engage customers, elevate their brand, reduce costs, and streamline operations through marketing on shipping labels.
With a four-year average dividend yield of 3.73%, the company pays an annual dividend of $0.25, which translates to a dividend yield of 3.57%.
In the fiscal first quarter (ended June 30, 2023), SEKEY’s revenue increased 5.7% year-over-year to ¥314.84 billion ($2.1 billion). Its gross profit rose marginally from the year-ago quarter to ¥107.74 billion ($731.51 million). Also, its profit for the period and EPS amounted to ¥20.19 billion ($137.08 million) and ¥60.89, respectively.
Analysts expect SEKEY’s revenue to increase 29.3% year-over-year to $9.20 billion for the fiscal year ending March 2024. Moreover, it surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 19.1% to close the last trading session at $7.97. It soared 8.6% year-to-date. Its 24-month beta is 0.41.
SEKEY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Value and a B for Stability and Quality. Within the 42-stock Technology - Hardware industry, it is ranked #4.
Click here to see SEKEY’s ratings for Growth, Momentum, and Sentiment.
Stock #2: Daktronics, Inc. (DAKT)
DAKT designs, manufactures, markets, and sells electronic display systems and related products for sporting, commercial, and transportation appliances globally. The company operates through Commercial; Live Events; High School Park and Recreation; Transportation; and International segments.
DAKT’s trailing-12-month EBIT and net income margins of 8.80% and 3.84% are higher than the industry averages of 4.51% and 2.03%.
DAKT’s net income and EPS have increased at CAGRs of 223.2% and 236.1% over the past three years.
The company pays an annual dividend of $3.53, which translates to a dividend yield of 8.35%. Its four-year average dividend yield is 9.84%. The company has raised its dividend at a CAGR of 130.2% over the past three years.
DAKT’s net sales rose 35.3% year-over-year to $232.53 million in the fiscal first quarter that ended July 29, 2023. Its gross profit increased 175.8% year-over-year to $71.15 million. The company reported a net income of $19.20 million and $0.42 per share, compared to a net loss of $5.33 million and $0.12 in the year-ago quarter.
DAKT’s shares have gained 295.7% over the past nine months and 14.7% over the past month to close the last trading session at $9.03.
It’s no surprise that DAKT has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Quality, and Sentiment. Within the same industry, it is ranked #2.
Beyond what we stated above, we also have DAKT’s ratings for Momentum, Stability, and Quality. Get all DAKT ratings here.
Stock #1: Panasonic Holdings Corporation (PCRFY)
Headquartered in Kadoma, Japan, PCRFY manufactures and sells various electronic products through five segments: Lifestyle; Automotive; Connect; Industry; and Energy. Its main product offerings include automotive-use batteries, refrigerators, and industrial motors and sensors.
PCRFY’s trailing-12-month net income margin of 4.95% is higher than the industry average of 4.40%. Its trailing-12-month CAPEX/Sales of 4.10% is 27.5% higher than the 3.22% industry average.
PCRFY’s net income and EPS have increased at CAGRs of 36% and 35.9% over the past three years.
On July 5, PCRFY announced the upcoming release of the Ver.2.3 firmware update program for the LUMIX GH6 to offer a more flexible workflow. The firmware program is available on the LUMIX Global Customer Support website.
The company pays an annual dividend of $0.22, which translates to a dividend yield of 1.90%. Its four-year average dividend yield is 2.68%.
During the fiscal first quarter that ended June 30, 2023, PCRFY’s net sales increased 2.8% year-over-year to ¥2.03 trillion ($13.78 billion). Its operating profit rose 41.9% from the year-ago quarter to ¥90.37 billion ($613.58 million). In addition, the company’s EPS stood at ¥86.06, up 310.4% year-over-year.
Street expects PCRFY’s EPS and revenue for the second quarter (ending September 30, 2023) to increase 29.7% and marginally year-over-year to $0.22 and $14.19 billion, respectively. The company has a remarkable surprise history, surpassing the consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 39.6% year-to-date and 49.1% over the past year to close the last trading session at $11.66. Its 24-month beta is 0.59.
PCRFY’s POWR Ratings reflect this robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability, Sentiment, and Quality. The stock is ranked first in the same industry.
To see the other ratings of PCRFY for Growth and Momentum, click here.
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DELL shares were trading at $69.52 per share on Friday morning, down $1.64 (-2.30%). Year-to-date, DELL has gained 76.98%, versus a 17.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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