Continued digitization of businesses and the growing adoption of various emerging technologies boost the demand for new and updated hardware. Therefore, hardware stocks Canon Inc. (CAJPY), Dell Technologies Inc. (DELL), and Daktronics, Inc. (DAKT), which analysts are bullish about, could be wise portfolio additions.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech hardware industry is well-positioned for growth.
The tech industry is constantly evolving, necessitating the need for cutting-edge hardware. As software advances, new and updated hardware becomes necessary to run those applications seamlessly.
Additionally, the growing investments in digitization across various sectors drive the demand for hardware such as servers, data centers, etc. Moreover, the adoption of emerging technologies like artificial intelligence, machine learning and the Internet of Things are all driving the demand for hardware as these technologies require advanced hardware to meet the complex processing and data storage requirements.
Gartner expects worldwide IT spending to rise 3.5% year-over-year to $4.69 trillion in 2023. Although it expects the spending on devices to decline 10% year-over-year to $689.29 billion this year, it is expected to rise 4.8% over the prior-year period to $722.47 billion in 2024. The IT hardware market is expected to grow at a CAGR of 7.9% to reach $177.11 billion.
Considering these conducive trends, let’s analyze the fundamentals of the three Technology – Hardware picks, beginning with the third choice.
Stock #3: Canon Inc. (CAJPY)
Headquartered in Tokyo, Japan, CAJPY manufactures and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. The company operates through a Printing Business Unit, an Imaging Business Unit, a Medical Business Unit, an Industrial Business Unit, and Others segments.
On October 13, 2023, CAJPY announced the launch of the FPA-1200NZ2C nanoimprint semiconductor manufacturing equipment. The launch of the FPA-1200NZ2C will help expand its lineup of semiconductor manufacturing equipment to meet the needs of a wide range of users.
On March 23, 2023, CAJPY announced the purchase of assets – technology for mass production of cells for treatment and other clinical applications owned by Kyoto Seisakusho Co., Ltd. This purchase will enhance CAJPY’s capability to mass-produce cells to realize regenerative medicine and other treatments.
Moreover, this mass production technology will provide benefits, including reliable quality and reduced quality testing costs.
In terms of the trailing-12-month net income margin, CAJPY’s 6.44% is 216.6% higher than the 2.03% industry average. Likewise, its 9.17% trailing-12-month EBIT margin is 96.8% higher than the 4.66% industry average. Additionally, its 14.78% trailing-12-month EBITDA margin is 61.2% higher than the 9.17% industry average.
For the fiscal third quarter ended September 30, 2023, CAJPY’s net sales increased 2.9% year-over-year to ¥1.03 trillion ($6.88 billion). Its operating profit rose 1.5% over the prior-year quarter to ¥82.62 billion ($551.97 million). The company’s net income attributable to CAJPY increased 14.8% year-over-year to ¥62.13 billion ($415.09 million). In addition, its EPS came in at ¥62.62, representing an increase of 18.4% year-over-year.
Street expects CAJPY’s revenue for the quarter ending June 30, 2024, to increase 1.8% year-over-year to $7.47 billion. Over the past year, the stock has gained 7.5% to close the last trading session at $22.98.
CAJPY’s POWR Ratings reflect solid prospects. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Technology – Hardware industry, it is ranked #9 out of 40 stocks. It has a B grade for Value, Stability, and Quality. To see the other ratings of CAJPY for Growth, Momentum, and Sentiment, 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 that it signed a definitive agreement to acquire Moogsoft, an AI-driven intelligent monitoring solution provider that supports DevOps and ITOps. The acquisition will enhance DELL’s AIOps capabilities as part of its approach to embedding AI functionality within its product portfolio and as a critical component of its "multicloud by design" strategy.
In terms of the trailing-12-month Capex/Sales, DELL’s 3.02% is 25% higher than the 2.42% industry average. Likewise, its 5.54% trailing-12-month EBIT margin is 18.9% higher than the 4.66% industry average. 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 74.7% to close the last trading session at $65.96.
DELL’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has an A grade for Sentiment and a B for Growth and Value. Click here to see the other ratings of DELL for Momentum, Stability, and Quality.
Stock #1: Daktronics, Inc. (DAKT)
DAKT designs, manufactures, and markets electronic display systems and related products for sporting, commercial, and transportation appliances. The company operates through Commercial, Live Events, High School Park and Recreation, Transportation, and international segments. The company also offers video displays and walls, scoreboards and timing systems, message displays, intelligent transportation, dynamic message signs, etc.
In terms of the trailing-12-month Return on Common Equity, DAKT’s 15.36% is significantly higher than the 1.13% industry average. Its 10.96% trailing-12-month EBITDA margin is 19.6% higher than the industry average of 9.17%. Likewise, its 1.66x trailing-12-month asset turnover ratio is 169.3% higher than the industry average of 0.62x.
For the fiscal first quarter ended July 29, 2023, DAKT’s net sales increased 35.3% year-over-year to $232.53 million. Its gross profit increased 175.8% year-over-year to $71.15 million. In addition, its net income came in at $19.20 million, compared to a net loss of $5.33 million in the year-ago quarter. Also, its EPS came in at $0.42, compared to a net loss per share of $0.12 in the year-ago quarter.
For the quarter ending October 31, 2023, DAKT’s EPS is expected to increase 208.3% year-over-year to $0.13. Its revenue for the quarter ending January 31, 2024, is expected to increase 10% year-over-year to $203.50 million. The stock has gained 243.6% year-to-date to close the last trading session at $9.69.
DAKT’s strong fundamentals are 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 Growth and Value and a B for Sentiment and Quality. It is ranked first in the Technology – Hardware industry. To see DAKT’s Momentum and Stability ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
DELL shares were trading at $66.39 per share on Monday morning, up $0.43 (+0.65%). Year-to-date, DELL has gained 69.97%, versus a 9.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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