Can These 3 Instruments Control Stocks Beat Earnings Targets?

The Zacks Instruments – Control industry is likely to have benefited from the diligent focus on energy-efficient production processes and integrated software systems in the second quarter of 2024.

Industry participants, including Transcat TRNS, Sensata Technologies Holding ST and Woodward WWD, have been benefiting from surging demand for state-of-the-art technology for replacing legacy industrial control systems with automated products.

The process instrumentation and automation industry is experiencing significant growth, primarily driven by the adoption of digital technologies like the Industrial Internet of Things in manufacturing. This trend is fueling demand for process automation, instrumentation products, safety systems and advanced sensors, which offer benefits such as improved product quality and reduced emissions. The industry's expansion is further supported by increasing regulatory requirements and the adoption of technology across various sectors.

Field instruments play a crucial role in process control by measuring key elements in industries such as chemicals, mining, and pharmaceuticals. These instruments, including transmitters for pressure, flow, temperature, level and humidity measurements, are essential for optimizing productivity. Companies with differentiated product offerings are better positioned to strengthen their market presence.

However, the industry faces challenges such as material cost inflation, rising transportation costs, and supply chain disruptions exacerbated by global events like the Russia-Ukraine conflict. These factors have impacted production schedules and profit margins as firms struggle to pass on increased costs to customers due to intense competition. The industry also contends with threats from low-cost suppliers, particularly from China, and exposure to foreign exchange fluctuations.

Despite these challenges, the industry is poised for growth, driven by increased automation adoption across sectors and investments in new technologies. North America is expected to maintain its dominant position in automation adoption, while growth in other regions is supported by infrastructural investments, evolving regulatory environments and increasing demand in various industries. The power generation, transportation, and marine sectors are also contributing to the industry's positive outlook for the second quarter of 2024.

The Instruments-Control space is housed within the broader Technology sector (one of the 16 broad Zacks sectors within the Zacks Industry classification). Per the latest Earnings Preview, the total earnings of technology companies for second-quarter 2024 are expected to be up 15.5% from the same period last year on 9.3% higher revenues.

Insight Into Key Releases

Ahead of their upcoming second-quarter 2024 earnings releases, let's take a look at the three abovementioned Instruments-Control stocks.

The Zacks model suggests that a company needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.

Transcat: Increasing focus on regulatory compliance and quality assurance in healthcare, pharmaceuticals, and aerospace sectors is likely to have driven demand for Transcat's calibration services and equipment in the to-be-reported quarter. Increases in productivity, driven primarily by automation and process improvement, are expected to have boosted Service segment revenues in the quarter under review.

The company's strategic acquisitions may have expanded the company's market reach and service capabilities in the to-be-reported quarter. The acquisition of Becnel further diversifies the company's portfolio of services in regulated spaces and increases Transcat's durability. Becnel operates in a regulated environmental space with synergistic growth opportunities with large instrumentation users. Transcat continues to see growth in the higher-margin Rental business, which is benefiting from the Axiom Test Equipment acquisition. Transcat's investments in its own digital capabilities and data management solutions may be paying off in terms of operational efficiency and customer retention.

The Zacks Consensus Estimate for TRNS' first-quarter fiscal 2025 earnings per share is pegged at 29 cents per share, unchanged over the past 30 days. The Zacks Consensus Estimate for total revenues is pegged at $69.06 million, suggesting 13.96% growth from the year-ago quarter.

The combination of an Earnings ESP of 0.00% and a Zacks Rank #2 makes a surprise prediction difficult. The company's earnings beat estimates in the trailing four quarters, the average surprise being 27.05%.

Sensata Technologies has an Earnings ESP of +0.15% and a Zacks Rank #3. The company's earnings outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 0.23%.