Reviewing Federal Signal (NYSE:FSS) & 3M (NYSE:MMM)

Federal Signal (NYSE:FSS) and 3M (NYSE:MMM) are both multi-sector conglomerates companies, but which is the superior stock? We will compare the two businesses based on the strength of their institutional ownership, analyst recommendations, profitability, risk, earnings, dividends and valuation.

Institutional & Insider Ownership

92.7% of Federal Signal shares are owned by institutional investors. Comparatively, 65.2% of 3M shares are owned by institutional investors. 3.3% of Federal Signal shares are owned by insiders. Comparatively, 0.2% of 3M shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Valuation & Earnings

This table compares Federal Signal and 3M”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Federal Signal	$2.18 billion	3.53	$246.60 million	$4.40	28.71
3M	$24.95 billion	3.30	$3.25 billion	$5.19	30.42

3M has higher revenue and earnings than Federal Signal. Federal Signal is trading at a lower price-to-earnings ratio than 3M, indicating that it is currently the more affordable of the two stocks.

Dividends

Federal Signal pays an annual dividend of $0.60 per share and has a dividend yield of 0.5%. 3M pays an annual dividend of $3.12 per share and has a dividend yield of 2.0%. Federal Signal pays out 13.6% of its earnings in the form of a dividend. 3M pays out 60.1% 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. Federal Signal has raised its dividend for 3 consecutive years and 3M has raised its dividend for 1 consecutive years.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Federal Signal and 3M, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Federal Signal	0	1	4	1	3.00
3M	2	6	6	0	2.29

Federal Signal presently has a consensus target price of $139.25, indicating a potential upside of 10.24%. 3M has a consensus target price of $170.00, indicating a potential upside of 7.66%. Given Federal Signal’s stronger consensus rating and higher possible upside, equities analysts clearly believe Federal Signal is more favorable than 3M.

Profitability

This table compares Federal Signal and 3M’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Federal Signal	11.56%	21.18%	13.14%
3M	11.14%	104.75%	12.03%

Volatility & Risk

Federal Signal has a beta of 1.23, meaning that its share price is 23% more volatile than the S&P 500. Comparatively, 3M has a beta of 1.02, meaning that its share price is 2% more volatile than the S&P 500.

Summary

Federal Signal beats 3M on 11 of the 18 factors compared between the two stocks.

About Federal Signal

Federal Signal Corp. engages in the design and manufacture of products and integrated solutions for municipal, governmental, industrial, and commercial customers. It operates through the Environmental Solutions Group and Safety and Security Systems Group segments. The Environment Solutions Group segment is involved in the manufacture and supply of street sweeper vehicles, sewer cleaners, vacuum loader trucks, hydro-excavation trucks, and water blasting equipment. The Safety and Security Systems Group segment offers comprehensive systems and products that law enforcement, fire rescue, emergency medical services, campuses, military facilities, and industrial sites use to protect people and property. The company was founded in 1901 and is headquartered in Oak Brook, IL.

About 3M

3M Company provides diversified technology services in the United States and internationally. The company’s Safety and Industrial segment offers industrial abrasives and finishing for metalworking applications; autobody repair solutions; closure systems for personal hygiene products, masking, and packaging materials; electrical products and materials for construction and maintenance, power distribution, and electrical original equipment manufacturers; structural adhesives and tapes; respiratory, hearing, eye, and fall protection solutions; and natural and color-coated mineral granules for shingles. Its Transportation and Electronics segment provides ceramic solutions; attachment/bonding products, films, sound, and temperature management for transportation vehicles; premium large format graphic films for advertising and fleet signage; light management films and electronics assembly solutions; packaging and interconnection solutions; semiconductor production materials; data centers solutions; and reflective signage for highway, and vehicle safety. The company’s Consumer segment provides consumer bandages, braces, supports, and consumer respirators; home cleaning products; retail abrasives, paint accessories, car care DIY products, picture hanging, and consumer air quality solutions; and stationery products. It offers its products through e-commerce and traditional wholesalers, retailers, jobbers, distributors, and dealers. 3M Company was founded in 1902 and is headquartered in Saint Paul, Minnesota.