Margaret Samuel picks three technology stocks to buy in a robotics industry that’s expected to grow by about 11 per cent per year between 2018 and 2026.
Robotics is the analysis, modelling and manufacturing of robots. It is closely related to many engineering disciplines including bioengineering, artificial intelligence and computer science. The use of robotics enabled by artificial intelligence is mushrooming in the consumer and industrial sectors. It is used to do everything from shipping packages to exploring oceans for undiscovered oil deposits.
Some examples of robots are industrial machines, self-driving cars, airborne drones, children’s toys and household appliances. We are more likely to interact with robots as the field of robotics continues to grow, for example in military, healthcare, consumer, automotive, agricultural and industrial applications.
One reason to invest in companies that design or construct robots is the long-term growth potential in robotics. According to the 2020 Global Industrial Robotics Market Analysis, the robotics industry is expected to grow by about 11 per cent per year between 2018 and 2026.
Robots automate our world. But are they worthwhile investments? Investors need to be wary of the risks of intense competition. For early start ups, especially those with relatively few resources and capital, competition can be fierce.
And the other major risk factor associated with robotics stocks is lofty valuations. As investors have become attracted to the robotics industry, demand for these stocks has driven valuations upward. One way to manage this risk is to focus on earnings-generating companies that are able to pay dividends.
In this article we present three dividend-paying stocks that use robotics in defence, healthcare and space.
Raytheon Technologies (NYSE—RTX)
The first company considered to be a play on robotics operates in the defence sector. It is Raytheon Technologies Corp., formerly United Technologies Corporation, and is located in Waltham, Massachusetts. Incorporated on July 21, 1934, it is an aerospace and defence company that provides technology products and services to the global aerospace and commercial building industries.
With 2020 consolidated net sales of $56.587 billion in fiscal 2020, and a backlog of $152 billion, Raytheon expects to repurchase $2 billion of its shares in 2021 and to return $20 billion in capital to shareholders in the four years following its merger with United. At its second quarter 2021 earnings conference call, the company projected that sales in 2021 are expected to be $64.4 to $65.4 billion, with free cash flow of $4.5 to $5.0 billion and earnings per share of $3.85 to $4.00. The company is monitoring the impact that international border re-openings and COVID variants will have on its financial performance.
Raytheon Technologies designs robots to help autonomous aircraft defend airspace and to assist soldiers on the ground. In addition to an array of autonomous drones, the company is now working on an exoskeleton that helps logistics personnel move heavy military equipment. One of Raytheon’s newest military robots is the “Coyote”, a drone used to track and shoot down enemy aircraft piloted by remote control or onboard computers.
Raytheon’s operations are divided into four principal business segments: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defence.
Collins Aerospace Systems provides aerospace and defence products and aftermarket service solutions around the world for aircraft manufacturers, airlines, and regional, business and general aviation, as well as for defence and commercial space operations.
Pratt & Whitney supplies and supports aircraft engines for commercial, military, business jet and general aviation customers. Pratt & Whitney sells products and services to private and government clients.
Raytheon Intelligence & Space develops and provides integrated sensor and communication systems for advanced training and missions, and software and cyber solutions to commercial, federal, defence and intelligence customers.
Raytheon Missiles & Defence serves US and foreign governments. It designs and develops integrated air and missile defence systems, combat solutions, radars, communications and intelligence solutions; and naval and undersea sensor solutions. One of its products, the Patriot missile defence system and radar systems, is designed to defeat advanced threats.
Distributing a dividend yielding about 2.3 per cent, Raytheon pays investors to wait for future robotics developments. There is reason, however, to monitor the sustainability of the dividend as the payout ratio is somewhat, but not alarmingly, high at 114.5 per cent. Nonetheless, comparing its growth rate to its price, Raytheon is on the lower end of the valuation spectrum with a PEG ratio of 0.85.
Stryker Corporation (NYSE—SYK)
In the healthcare sector, Stryker Corp., located in Kalamazoo, Michigan, is one of the world’s leading medical technology companies. It offers innovative products and services in Orthopedics, Medical and Surgical, and Neurotechnology and Spine designed to help improve patient and hospital outcomes.
Stryker makes robotic-arm assisted surgery machines. Using 3D modeling of bone anatomy, the company’s Mako robots assist surgeons in joint surgeries for partial and total hip and knee replacements.
Stryker offers a range of medical technologies, including orthopedic, medical and surgical, and neurotechnology and spine products. The company’s products are sold in over 100 countries and are marketed directly to doctors, hospitals and other healthcare facilities.
Stryker also pays its investors to be patient for future robotics growth as its dividend yield is 0.96 per cent, and appears comfortably sustainable with a payout ratio of about 45.15 per cent. Although its PEG ratio of 2.23 indicates a somewhat pricey stock, this is in line with its competitors, which include Johnson & Johnson, with a PEG ratio of about 2.04.
Calian Group Ltd. (TSX—CGY)
A Canadian-based robotics company is Calian Group Ltd. With headquarters in Ottawa, Calian has offices and projects across Canada and international markets.
With revenues exceeding $125 million, Calian employs over 4,500 people engaged in its delivery of diverse products and solutions for private sector, government and defence customers in North American and global markets.
The company’s segments are Advanced Technologies, which provides products, technologies and manufacturing services and solutions for the space, communications, defence, nuclear, government and agriculture sectors; Health, which manages a network of more than 2,400 healthcare professionals delivering primary care and occupational health services; Learning, which provides emergency management, consulting and specialized training services and solutions for the Canadian Armed Forces and clients in the defence, health, energy and other sectors; and IT and Cyber Solutions, which supports public- and private-sector customer requirements for subject-matter expertise in the delivery of complex IT and cyber security solutions.
In its 3rd quarter, Calian’s revenue increased 29 per cent to $136 million, the second-highest quarterly revenue in the company’s history. Gross margins were 25 per cent and revenue grew more than 15 per cent in each of the firm’s four operating segments.
“Our strong performance through our first three quarters, and our continued momentum have allowed us to increase our guidance for the FY21 fiscal year,” said Kevin Ford, Calian’s CEO. In addition, Calian’s CFO, Patrick Houston, highlighted that: “This quarter represents a new high for the company in both gross margins and adjusted EBITDA.”
However, with a PEG ratio of 9.10, Calian has the loftiest valuation of the three companies considered in this analysis. Nonetheless, its dividend yield of 1.84 per cent appears to be sustainable as its payout ratio is conservative at about 66.67 per cent.
Margaret Samuel, MBA, LL.B., CFA is President, CEO and Portfolio Manager of Enriched Investing Incorporated. She can be contacted at firstname.lastname@example.org. She or clients of Enriched Investing™ may hold positions in the securities mentioned. The information provided is general in nature and does not represent investment advice. It is subject to change without notice and is based on the perspectives and opinions of the writer only. It may also contain forward-looking statements that may not prove to be accurate. Every effort has been made to compile this material from reliable sources; however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please consult an appropriate professional regarding your particular circumstances.
This is an edited version of an article that was originally published for subscribers October 2021, Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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