Knowles (KN) Appears a Solid Investment Bet Now: Here's Why
With healthy fundamentals and inherent growth drivers, Knowles (KN) appears to be a solid investment option at the moment.
Shares of Knowles Corporation KN have risen 28.1% over the past year, driven by healthy revenues on the back of a flexible business model and a quick time-to-market schedule to meet clients’ evolving needs. Earnings estimates for the current and next fiscal have increased 24.4% and 20%, respectively, over the past year, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #2 (Buy) communication components manufacturer appears to be a solid investment option at the moment.
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Headquartered in Itasca, IL, Knowles is a premier provider of advanced micro-acoustic, audio processing and precision device solutions, serving the mobile consumer electronics, communications, medical, defense, automotive and industrial markets. Leveraging its leading position in MEMS (micro-electro-mechanical systems) microphones and strong capabilities in audio processing technologies, the company optimizes audio systems and improves user experience in mobile, ear, and IoT applications. Knowles also offers acoustic components, high-end capacitors, and mmWave RF solutions for diverse markets.
Voice-powered interactions are fast emerging as a critical and necessary feature as consumers tend to engage with technology through natural, spoken commands across the mobile, ear and IoT platforms. This has led to a wide proliferation of products ranging from mobile phones to headsets and from smart speakers to household appliances. Knowles aims to capitalize on its unique capabilities in acoustics, digital signal processing, and algorithms to cater to these demands. The acquisition of Audience further helped the company gain essential digital signal processing and algorithm capabilities. Strong business focus, disciplined capital management, and continuous R&D (research & development) initiatives have helped Knowles to command a leading market position in MEMS microphones, balanced armature speakers, edge processors, high-performance capacitors, and radiofrequency filtering solutions. MEMS microphones are the smallest of their kind with the highest signal-to-noise ratio at the lowest power, while the balanced armature speakers offer the greatest output at the lowest power.
Proprietary manufacturing techniques and global scale of operations have facilitated the company to fine-tune its business with the evolving customer demands and invest in high-value solutions. The transformation from an acoustic component supplier to an audio solutions provider has enabled the company to migrate to higher-value solutions and increase content per device. This, in turn, has empowered it to capitalize on the positive macro trends in audio and edge processing solutions.
Knowles boasts integrated design and manufacturing scale of operations. The company has a unique ability to balance and shift between full and semi-automation to optimize the efficiency of the operations and reduce operating expenses. For products that were introduced more than 18 months ago, Knowles strives to offset expected price erosion through bill of material cost reductions, yield improvements, equipment efficiency, and movement to lower-cost manufacturing locations.
With a VGM Score of A, the stock delivered an earnings surprise of 14.6%, on average, in the trailing four quarters. The stock has a long-term earnings growth expectation of 10%.
Other Key Picks
Another top-ranked stock in the industry is SeaChange International, Inc. SEAC, carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SeaChange delivered an earnings surprise of 37.2%, on average, in the trailing four quarters and has a long-term growth expectation of 10%. Earnings estimates for the current year for the stock have moved up 35.7% since January 2021. Over the past year, SeaChange has gained a solid 67.3%.
KVH Industries, Inc. KVHI, carrying a Zacks Rank #2, is another solid pick for investors. It delivered an earnings surprise of 50%, on average, in the trailing four quarters.
Despite global supply chain disruptions, KVH Industries is driving growth and margin expansion through new product introduction and subscriber migration to High-Throughput Satellites. The company aims to make decisive inroads into the still-nascent autonomous transportation markets with a strong balance sheet position and zero debt. If KVH Industries manages to effectively mitigate supply chain woes, there could be further room for cash flow expansion.
Harmonic Inc. HLIT carries a Zacks Rank #2. It has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 61.1%, on average, in the trailing four quarters.
Over the past year, Harmonic has gained 66.2%. The company boasts a thriving ecosystem of technology partners that ensures access to a broad portfolio of third-party products and applications with seamless workflow integration.
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