AZZ (NYSE: AZZ) and MTS Systems (NASDAQ:MTSC) are both small-cap industrial products companies, but which is the better stock? We will contrast the two companies based on the strength of their valuation, institutional ownership, risk, earnings, analyst recommendations, dividends and profitability.

Dividends

AZZ pays an annual dividend of $0.68 per share and has a dividend yield of 1.4%. MTS Systems pays an annual dividend of $1.20 per share and has a dividend yield of 2.2%. AZZ pays out 34.5% of its earnings in the form of a dividend. MTS Systems pays out 91.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MTS Systems has raised its dividend for 3 consecutive years. MTS Systems is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings & Valuation

This table compares AZZ and MTS Systems’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
AZZ $858.93 million 1.43 $60.92 million $1.97 23.93
MTS Systems $787.96 million 1.26 $25.08 million $1.31 42.60

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

Profitability

This table compares AZZ and MTS Systems’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
AZZ 6.27% 9.65% 5.13%
MTS Systems 3.18% 10.32% 3.61%

Insider & Institutional Ownership

87.9% of AZZ shares are owned by institutional investors. Comparatively, 98.0% of MTS Systems shares are owned by institutional investors. 0.0% of AZZ shares are owned by insiders. Comparatively, 1.8% of MTS Systems shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Volatility and Risk

AZZ has a beta of 1.55, meaning that its share price is 55% more volatile than the S&P 500. Comparatively, MTS Systems has a beta of 1.26, meaning that its share price is 26% more volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent ratings for AZZ and MTS Systems, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
AZZ 0 1 0 0 2.00
MTS Systems 0 1 2 0 2.67

AZZ currently has a consensus price target of $52.00, indicating a potential upside of 10.29%. MTS Systems has a consensus price target of $65.50, indicating a potential upside of 17.38%. Given MTS Systems’ stronger consensus rating and higher probable upside, analysts plainly believe MTS Systems is more favorable than AZZ.

Summary

MTS Systems beats AZZ on 9 of the 17 factors compared between the two stocks.

About AZZ

AZZ Inc. is a provider of galvanizing services, welding solutions, specialty electrical equipment and engineered services to the power generation, transmission, distribution, refining and industrial markets. The Company operates through two segments: Energy segment and Galvanizing segment. Its Energy segment provides products and services designed to support industrial, nuclear and electrical applications. Its product offerings include custom switchgear, electrical enclosures, medium and high voltage bus ducts, explosion proof and hazardous duty lighting, nuclear safety-related equipment and tubular products. Its Galvanizing segment provides hot dip galvanizing to the steel fabrication industry through facilities located throughout the United States and Canada. It serves fabricators or manufacturers that provide services to the electrical and telecommunications, bridge and highway, petrochemical and general industrial markets and various original equipment manufacturers.

About MTS Systems

MTS Systems Corporation is a supplier of test systems and position sensors. The Company operates through two segments: Test and Sensors. The Test segment provides testing solutions, including hardware, software and services to ground vehicles, materials and structures markets. The Sensors segment provides position sensors for a range of industrial and mobile hydraulic applications. The Sensors segment products are used by industrial machinery and mobile equipment manufacturers to automate the operation of their products for safety and end-user productivity. The Sensors segment manufactures products utilizing magnetostriction technology. Its technology, Temposonics, offers non-contact position sensing. Its Temposonics sensors provide position feedback for motion control systems. It also provides various service offerings, including calibration, maintenance, training and consulting. The Company has its manufacturing facilities in North America, Europe and Asia.

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