Simpson Manufacturing (NYSE: SSD) and Cummins (NYSE:CMI) are both mid-cap construction companies, but which is the better stock? We will contrast the two businesses based on the strength of their valuation, profitability, dividends, analyst recommendations, institutional ownership, earnings and risk.

Valuation & Earnings

This table compares Simpson Manufacturing and Cummins’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Simpson Manufacturing $860.66 million 3.24 $89.73 million $2.02 29.22
Cummins $17.51 billion 1.64 $1.39 billion $9.85 17.57

Cummins has higher revenue and earnings than Simpson Manufacturing. Cummins is trading at a lower price-to-earnings ratio than Simpson Manufacturing, indicating that it is currently the more affordable of the two stocks.

Dividends

Simpson Manufacturing pays an annual dividend of $0.84 per share and has a dividend yield of 1.4%. Cummins pays an annual dividend of $4.32 per share and has a dividend yield of 2.5%. Simpson Manufacturing pays out 41.6% of its earnings in the form of a dividend. Cummins pays out 43.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Simpson Manufacturing has raised its dividend for 7 consecutive years and Cummins has raised its dividend for 3 consecutive years.

Profitability

This table compares Simpson Manufacturing and Cummins’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Simpson Manufacturing 10.25% 9.92% 8.62%
Cummins 8.49% 21.28% 10.18%

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Simpson Manufacturing and Cummins, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Simpson Manufacturing 0 0 2 0 3.00
Cummins 2 10 4 0 2.13

Simpson Manufacturing currently has a consensus target price of $58.00, indicating a potential downside of 1.73%. Cummins has a consensus target price of $170.87, indicating a potential downside of 1.27%. Given Cummins’ higher probable upside, analysts clearly believe Cummins is more favorable than Simpson Manufacturing.

Insider & Institutional Ownership

84.1% of Simpson Manufacturing shares are owned by institutional investors. Comparatively, 81.1% of Cummins shares are owned by institutional investors. 0.4% of Simpson Manufacturing shares are owned by company insiders. Comparatively, 0.6% of Cummins shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Volatility & Risk

Simpson Manufacturing has a beta of 1.49, indicating that its share price is 49% more volatile than the S&P 500. Comparatively, Cummins has a beta of 1.16, indicating that its share price is 16% more volatile than the S&P 500.

Summary

Cummins beats Simpson Manufacturing on 9 of the 17 factors compared between the two stocks.

Simpson Manufacturing Company Profile

Simpson Manufacturing Co., Inc., through its subsidiary, Simpson Strong-Tie Company Inc. (SST), designs, engineers and manufactures wood construction products, including connectors, truss plates, fastening systems, fasteners and pre-fabricated lateral systems used in light-frame construction. The Company’s segments are North America, Europe, Asia/Pacific, and Administrative & All Other. The North America segment includes operations primarily in the United States and Canada. The Europe segment includes operations primarily in France, the United Kingdom, Germany, Denmark, Switzerland, Portugal, Poland, the Netherlands and Belgium. The Asia/Pacific segment includes operations primarily in Australia, New Zealand, South Africa, China, Taiwan and Vietnam. The Company manufactures concrete construction products used for concrete, masonry, steel construction and for concrete repair, protection and strengthening, including adhesives, chemicals and mechanical anchors.

Cummins Company Profile

Cummins Inc. designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products. The Company’s segments include Engine, Distribution, Components and Power Systems. The Engine segment manufactures and markets a range of diesel and natural gas powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy and medium-duty truck, bus, recreational vehicle (RV), light-duty automotive and agricultural markets. The Distribution segment consists of the product lines, which service and/or distribute a range of products and services, including parts, engines, power generation and service. The Components segment supplies products, including aftertreatment systems, turbochargers, filtration products and fuel systems for commercial diesel applications. The Power Systems segment consists of businesses, including Power generation, Industrial and Generator technologies.

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