Despite macroeconomic challenges, increasing investments in digitization and emerging technologies fuel demand for advanced hardware solutions to enhance productivity and streamline operations.
Given the favorable backdrop for the tech hardware industry, it could be wise to buy fundamentally strong tech stocks HP Inc. (HPQ), Canon Inc. (CAJPY), and Daktronics, Inc. (DAKT).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech hardware industry is well-positioned to grow.
Advanced hardware and equipment are making software increasingly relevant. Without quality hardware, software becomes redundant. Hardware includes personal computers, printers, keyboards, networking components, data centers, servers, tablets, GPUs, and more. The global hardware market is expected to reach $164.21 billion by 2027 at a CAGR of 7.9%.
According to Gartner, worldwide IT spending is expected to reach $4.7 trillion in 2023, with a 4.3% increase from 2022. This growth is driven by increased investments in cloud computing, artificial intelligence, and business digital transformation programs, along with rising demand for new technology and innovative solutions.
Emerging technologies such as artificial intelligence (AI), machine learning, the Internet of Things (IoT), augmented reality (AR), and virtual reality (VR) are all driving the demand for specialized hardware that can help them conduct their operations at their optimum level.
In addition, spending on devices is expected to grow 6.9% over the prior year to reach $748.15 billion in 2024. The global hardware market is anticipated to reach $164.21 billion by 2027, at a CAGR of 7.9%.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Technology - Hardware picks, beginning with the third choice.
Stock #3: HP Inc. (HPQ)
HPQ provides personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services in the United States and internationally. The company operates through three segments: Personal Systems; Printing; and Corporate Investments.
In terms of the trailing-12-month net income margin, HPQ’s 4.27% is 109.9% higher than the 2.03% industry average. Likewise, its 7.62% trailing-12-month EBIT margin is 66% higher than the industry average of 4.59%. Furthermore, the stock’s 27.89% trailing-12-month Return on Total Capital is significantly higher than the industry average of 2.37%.
HPQ’s net revenues for the fiscal third quarter ended July 31, 2023, came in at $13.20 billion. Its non-GAAP net earnings came in at $859 million. The company’s non-GAAP earnings per share came in at $0.86.
Additionally, its cash inflow from operating activities rose 147.7% from the year-ago quarter to $976 million. Also, its free cash flow increased 214% year-over-year to $900 million.
Street expects HPQ’s EPS for the quarter ending October 31, 2023, to increase 6% year-over-year to $0.90. Its revenue for the quarter ending January 31, 2024, is expected to increase 1.2% year-over-year to $13.99 billion. Over the past year, the stock has gained 4.5% to close the last trading session at $25.67.
HPQ’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 an A grade for Value and a B for Growth. Within the Technology - Hardware industry, it is ranked #9 out of 42 stocks. To see HPQ’s Momentum, Stability, Sentiment, and Quality ratings, click here.
Stock #2: 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 other segments.
On July 12, 2023, CAJPY announced the development of a process for sorting plastic pieces based on their material, aiming to improve plastic recycling efforts. They are using tracking type Raman spectroscopy technology, which allows for the accurate identification of materials, including challenging black plastic pieces and those mixed with other colors.
CAJPY plans to introduce plastic sorting equipment using this method in the first half of 2024. This technology will contribute to more efficient plastic recycling and support a circular economy.
On March 23, 2023, CAJPY announced its acquisition of assets from Kyoto Seisakusho Co., Ltd., including technology for the mass production of cells for medical applications. This move aims to enhance CAJPY's presence in the field of Bio-science and accelerate advancements in regenerative medicine.
In terms of the trailing-12-month net income margin, CAJPY’s 6.29% is 209.3% higher than the 2.03% industry average. Likewise, its 9.04% trailing-12-month EBIT margin is 96.8% higher than the 4.59% industry average. Additionally, its 8.11% trailing-12-month Return on Common Equity is 601% higher than the 1.16% industry average.
CAJPY’s net sales for the second quarter ended June 30, 2023, increased 2.2% year-over-year to ¥1.02 trillion ($68.10 billion). Its operating profit came in at ¥92.27 billion ($616.09 million). The company’s net income attributable to CAJPY increased 10.8% year-over-year to ¥65.40 billion ($436.68 million).
In addition, its EPS came in at ¥64.75, representing an increase of 13.9% year-over-year.
Analysts expect CAJPY’s revenue for the quarter ended September 30, 2023, to increase 5.2% year-over-year to $7.16 billion. Over the past six months, the stock has gained 6.8% to close the last trading session at $23.77.
It’s no surprise that CAJPY has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #8. In total, we rate CAJPY on eight different levels. Beyond what we stated above, we also have given CAJPY grades for Growth, Momentum, and Sentiment. Get all the CAJPY ratings here.
Stock #1: 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.
On August 4, 2023, DAKT announced the addition of 14 new LED displays at Gillette Stadium, including the largest outdoor videoboard in a sports venue in the country. The project added 14 displays totaling more than 29,500 square feet, bringing a total of 47 DAKT LED displays and a combined 48,500 square feet of digital canvas to Gillette Stadium.
DAKT’s President and CEO Reece Kurtenbach said, “Gillette Stadium continues its strong commitment to the overall fan experience by continually improving technology at its facility, including new LED displays installed over the past few seasons and a massive end zone video display that was installed this year. Their team is fantastic to work with, and we’re proud to continue our longstanding partnership with the Kraft Group.”
On May 11, 2023, DAKT announced two significant financial transactions. They closed a new 3-year $75 million senior secured credit facility with JPMorgan Chase, maturing on May 11, 2026, to enhance their financial position.
Additionally, they closed a $25 million convertible debt financing agreement with major shareholder Alta Fox Capital Management, LLC, including convertible promissory notes due on May 11, 2027, and extending the existing standstill agreement with Alta Fox.
In terms of the trailing-12-month Return on Common Equity, DAKT’s 15.36% is significantly higher than the 1.16% industry average. Its 8.80% trailing-12-month EBIT margin is 91.6% higher than the industry average of 4.59%. Likewise, its 1.66x trailing-12-month asset turnover ratio is 168.5% higher than the industry average of 0.62x.
DAKT’s net sales for the first quarter that ended July 29, 2023, 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 net income per share came in at $0.42, compared to a net loss per share of $0.12 in the year-ago quarter.
Over the past nine months, DAKT has gained 216.3% to close the last trading session at $8.92.
DAKT’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 Sentiment and a B for Growth and Quality. It is ranked first in the Technology – Hardware industry. To see DAKT’s Momentum and Stability ratings, click here.
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HPQ shares were trading at $26.12 per share on Tuesday afternoon, up $0.45 (+1.75%). Year-to-date, HPQ has declined -0.15%, versus a 11.18% 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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