MTS Systems Corp Valuation – June 2018 $MTSC

Company Profile (excerpt from Reuters): MTS Systems Corporation, incorporated on September 12, 1966, is a supplier of test systems and position sensors. The Company operates through two segments: Test and Sensors. The Test segment provides testing equipment, systems and services. The Test segment serves various markets, including the ground vehicles, materials and structures. The Sensors segment provides position sensors for a range of industrial and mobile hydraulic applications. The Company’s Sensors Segment serves markets, including industrial machinery, mobile hydraulics and liquid level. The Company has its manufacturing facilities in North America, Europe and Asia.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MTSC – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $929,695,622 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.68 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 21.81% Fail
6. Moderate PEmg Ratio PEmg < 20 21.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.15 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.68 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.02 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.46
MG Growth Estimate -2.80%
MG Value $7.14
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $35.74
MG Value based on 0% Growth $20.95
Market Implied Growth Rate 6.43%
Current Price $52.65
% of Intrinsic Value 737.31%

MTS Systems Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.03 in 2014 to an estimated $2.46 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.43% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into MTS Systems Corporation revealed the company was trading above its Graham Number of $44.1. The company pays a dividend of $1.2 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.36, which was below the industry average of 55.37, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.04.

MTS Systems Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$13.04
Graham Number $44.10
PEmg 21.36
Current Ratio 1.68
PB Ratio 2.15
Current Dividend $1.20
Dividend Yield 2.28%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $432,414,000
Total Current Liabilities $257,065,000
Long-Term Debt $354,255,000
Total Assets $1,155,921,000
Intangible Assets $620,983,000
Total Liabilities $683,691,000
Shares Outstanding (Diluted Average) 19,273,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.58
Sep2017 $1.31
Sep2016 $1.70
Sep2015 $3.00
Sep2014 $2.73
Sep2013 $3.64
Sep2012 $3.21
Sep2011 $3.24
Sep2010 $1.14
Sep2009 $1.03
Sep2008 $2.80
Sep2007 $2.29
Sep2006 $2.04
Sep2005 $1.81
Sep2004 $1.35
Sep2003 $0.95
Sep2002 $0.20
Sep2001 $0.50
Sep2000 $0.17
Sep1999 $0.59
Sep1998 $1.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.46
Sep2017 $2.10
Sep2016 $2.61
Sep2015 $3.10
Sep2014 $3.03
Sep2013 $2.94
Sep2012 $2.49
Sep2011 $2.12
Sep2010 $1.66
Sep2009 $1.94
Sep2008 $2.28
Sep2007 $1.91
Sep2006 $1.57
Sep2005 $1.21
Sep2004 $0.82
Sep2003 $0.53
Sep2002 $0.38

Recommended Reading:

Other ModernGraham posts about the company

MTS Systems Corp Valuation – July 2016 $MTSC
MTS Systems Corp Valuation – February 2016 Update $MTSC
13 Best Stocks For Value Investors This Week – 10/17/15
MTS Systems Corporation Valuation – October 2015 Update $MTSC
The Best Stocks of the IT Hardware Industry – September 2015

Other ModernGraham posts about related companies

Emerson Electric Co Valuation – June 2018 $EMR
Skyworks Solutions Inc Valuation – June 2018 $SWKS
Garmin Ltd Valuation – June 2018 $GRMN
Hewlett Packard Enterprise Co Valuation – June 2018 $HPE
Fortive Corp Valuation – June 2018 $FTV
Analog Devices Inc Valuation – June 2018 $ADI
IPG Photonics Corp Valuation – June 2018 $IPGP
Micron Technology Inc Valuation – May 2018 $MU
Amphenol Corp Valuation – May 2018 $APH
Xilinx Inc Valuation – May 2018 $XLNX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

MTS Systems Corp Valuation – July 2016 $MTSC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how MTS Systems Corp (MTSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors. Testing segment’s testing hardware, software and services solutions help customers improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. Test also sells a range of accessories and spare parts, as well as services, including installation, calibration, maintenance, training and consulting. MTS’ sensors segment provides controls for a range of industrial and vehicular applications. The segment’s customer industries include manufacturers of plastic injection molding machines, steel mills, fluid power, oil and gas, medical, wood product processing equipment, mobile equipment, and energy.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of MTSC – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $778,729,602 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.67 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 32.19% Fail
6. Moderate PEmg Ratio PEmg < 20 16.75 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.79 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.67 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MTSC value chart July 2016

EPSmg $2.83
MG Growth Estimate 2.09%
MG Value $35.90
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $41.06
MG Value based on 0% Growth $24.07
Market Implied Growth Rate 4.12%
Current Price $47.43
% of Intrinsic Value 132.13%

MTS Systems Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.49 in 2012 to an estimated $2.83 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.12% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

MTS Systems Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

MTSC charts July 2016

Net Current Asset Value (NCAV) $7.81
Graham Number $30.12
PEmg 16.75
Current Ratio 1.67
PB Ratio 2.79
Current Dividend $1.20
Dividend Yield 2.53%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $362,235,000
Total Current Liabilities $216,873,000
Long-Term Debt $0
Total Assets $498,378,000
Intangible Assets $47,500,000
Total Liabilities $246,177,000
Shares Outstanding (Diluted Average) 14,851,000

Earnings Per Share History

Next Fiscal Year Estimate $2.36
Sep2015 $3.00
Sep2014 $2.73
Sep2013 $3.64
Sep2012 $3.21
Sep2011 $3.24
Sep2010 $1.14
Sep2009 $1.03
Sep2008 $2.80
Sep2007 $2.29
Sep2006 $2.04
Sep2005 $1.81
Sep2004 $1.35
Sep2003 $0.95
Sep2002 $0.20
Sep2001 $0.61
Sep2000 $0.17
Sep1999 $0.59
Sep1998 $1.08
Sep1997 $1.10
Sep1996 $0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.83
Sep2015 $3.10
Sep2014 $3.03
Sep2013 $2.94
Sep2012 $2.49
Sep2011 $2.12
Sep2010 $1.66
Sep2009 $1.94
Sep2008 $2.28
Sep2007 $1.91
Sep2006 $1.57
Sep2005 $1.22
Sep2004 $0.84
Sep2003 $0.55
Sep2002 $0.41
Sep2001 $0.58
Sep2000 $0.63

Recommended Reading:

Other ModernGraham posts about the company

MTS Systems Corp Valuation – February 2016 Update $MTSC
13 Best Stocks For Value Investors This Week – 10/17/15
MTS Systems Corporation Valuation – October 2015 Update $MTSC
13 Best Stocks For Value Investors This Week – 10/17/15
The Best Stocks of the IT Hardware Industry – September 2015

Other ModernGraham posts about related companies

Broadcom Limited Valuation – July 2016 $AVGO
Microchip Technology Inc Valuation – July 2016 $MCHP
Jabil Circuit Inc Valuation – July 2016 $JBL
KLA-Tencor Corp Valuation – July 2016 $KLAC
Linear Technology Corp Valuation – July 2016 $LLTC
Arrow Electronics Inc Valuation – July 2016 $ARW
Lam Research Corp Valuation – June 2016 $LRCX
TE Connectivity Ltd Valuation – June 2016 $TEL
Juniper Networks Inc Valuation – June 2016 $JNPR
Nvidia Corporation Valuation – June 2016 $NVDA

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

MTS Systems Corp Valuation – February 2016 Update $MTSC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how MTS Systems Corp (MTSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors. Testing segment’s testing hardware, software and services solutions help customers improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. Test also sells a range of accessories and spare parts, as well as services, including installation, calibration, maintenance, training and consulting. MTS’ sensors segment provides controls for a range of industrial and vehicular applications. The segment’s customer industries include manufacturers of plastic injection molding machines, steel mills, fluid power, oil and gas, medical, wood product processing equipment, mobile equipment, and energy.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of MTSC – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $798,953,728 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.86 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 43.14% Pass
6. Moderate PEmg Ratio PEmg < 20 17.14 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.06 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.86 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MTSC value Chart February 2016

EPSmg $3.06
MG Growth Estimate 3.44%
MG Value $46.96
Opinion Overvalued
MG Value based on 3% Growth $44.30
MG Value based on 0% Growth $25.97
Market Implied Growth Rate 4.32%
Current Price $52.38
% of Intrinsic Value 111.54%

MTS Systems Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the small size, low current ratio, and the high PB ratio.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.49 in 2012 to an estimated $3.06 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 4.32% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MTS Systems Corp (MTSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

MTSC Charts February 2016

Net Current Asset Value (NCAV) $8.29
Graham Number $34.33
PEmg 17.14
Current Ratio 1.86
PB Ratio 3.06
Dividend Yield 2.29%
Number of Consecutive Years of Dividend Growth 0

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $327,713,000
Total Current Liabilities $176,652,000
Long-Term Debt $0
Total Assets $460,831,000
Intangible Assets $47,383,000
Total Liabilities $202,689,000
Shares Outstanding (Diluted Average) 15,073,000

Earnings Per Share History

Next Fiscal Year Estimate $3.03
Sep2015 $3.00
Sep2014 $2.73
Sep2013 $3.64
Sep2012 $3.21
Sep2011 $3.24
Sep2010 $1.14
Sep2009 $1.03
Sep2008 $2.80
Sep2007 $2.29
Sep2006 $2.04
Sep2005 $1.81
Sep2004 $1.35
Sep2003 $0.95
Sep2002 $0.20
Sep2001 $0.50
Sep2000 $0.17
Sep1999 $0.59
Sep1998 $1.01
Sep1997 $1.05
Sep1996 $0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.06
Sep2015 $3.10
Sep2014 $3.03
Sep2013 $2.94
Sep2012 $2.49
Sep2011 $2.12
Sep2010 $1.66
Sep2009 $1.94
Sep2008 $2.28
Sep2007 $1.91
Sep2006 $1.57
Sep2005 $1.21
Sep2004 $0.82
Sep2003 $0.53
Sep2002 $0.38
Sep2001 $0.53
Sep2000 $0.61

Recommended Reading:

Other ModernGraham posts about the company

13 Best Stocks For Value Investors This Week – 10/17/15
The Best Stocks of the IT Hardware Industry – September 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15
MTS Systems Corporation Analysis – July 2015 Update $MTSC
MTS Systems Corporation Quarterly Valuation – April 2015 $MTSC

Other ModernGraham posts about related companies

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Seagate Technology PLC Valuation – January 2016 Update $STX
Microchip Technology Inc Valuation – January 2016 Update $MCHP
Avago Technologies Ltd Valuation – January 2016 Update $AVGO
KLA-Tencor Corp Valuation – January 2016 Update $KLAC
Lam Research Corp Valuation – January 2016 Update $LRCX
Amphenol Corporation Valuation – January 2016 Update $APH
Arrow Electronics Inc Valuation – December 2015 Update $ARW
TE Connectivity Ltd Valuation – December 2015 Update $TEL
Broadcom Corp Valuation – November 2015 Update $BRCM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

MTS Systems Corporation Valuation – October 2015 Update $MTSC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how MTS Systems Corporation (MTSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors. Testing segment’s testing hardware, software and services solutions help customers improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. Test also sells a range of accessories and spare parts, as well as services, including installation, calibration, maintenance, training and consulting. MTS’ sensors segment provides controls for a range of industrial and vehicular applications. The segment’s customer industries include manufacturers of plastic injection molding machines, steel mills, fluid power, oil and gas, medical, wood product processing equipment, mobile equipment, and energy.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of MTSC – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $941,007,893 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.78 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 31.42% Fail
6. Moderate PEmg Ratio PEmg < 20 20.31 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.74 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.78 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MTSC value Chart October 2015

EPSmg $3.10
MG Growth Estimate 6.98%
MG Value $69.60
Opinion Fairly Valued
MG Value based on 3% Growth $44.95
MG Value based on 0% Growth $26.35
Market Implied Growth Rate 5.91%
Current Price $62.97
% of Intrinsic Value 90.48%

MTS Systems Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings growth over the last ten years and the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.12 in 2011 to an estimated $3.10 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.91% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MTS Systems Corporation (MTSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

MTSC Charts October 2015

Net Current Asset Value (NCAV) $8.01
Graham Number $33.91
PEmg 20.31
Current Ratio 1.78
PB Ratio 3.74
Dividend Yield 1.91%
Number of Consecutive Years of Dividend Growth 0

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $331,346,000
Total Current Liabilities $185,993,000
Long-Term Debt $0
Total Assets $464,586,000
Intangible Assets $47,451,000
Total Liabilities $210,637,000
Shares Outstanding (Diluted Average) 15,070,000

Earnings Per Share History

Next Fiscal Year Estimate $3.00
Sep14 $2.73
Sep13 $3.64
Sep12 $3.21
Sep11 $3.24
Sep10 $1.14
Sep09 $1.03
Sep08 $2.80
Sep07 $2.29
Sep06 $2.04
Sep05 $1.81
Sep04 $1.35
Sep03 $0.95
Sep02 $0.20
Sep01 $0.50
Sep00 $0.17
Sep99 $0.59
Sep98 $1.01
Sep97 $1.05
Sep96 $0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.10
Sep14 $3.03
Sep13 $2.94
Sep12 $2.49
Sep11 $2.12
Sep10 $1.66
Sep09 $1.94
Sep08 $2.28
Sep07 $1.91
Sep06 $1.57
Sep05 $1.21
Sep04 $0.82
Sep03 $0.53
Sep02 $0.38
Sep01 $0.53
Sep00 $0.61
Sep99 $0.77

Recommended Reading:

Other ModernGraham posts about the company

The Best Stocks of the IT Hardware Industry – September 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15
MTS Systems Corporation Analysis – July 2015 Update $MTSC
MTS Systems Corporation Quarterly Valuation – April 2015 $MTSC
MTS Systems Corporation Quarterly Valuation – January 2015 $MTSC

Other ModernGraham posts about related companies

Linear Technology Corp Valuation – October 2015 Update $LLTC
Altera Corporation Analysis – October 2015 Update $ALTR
Lam Research Corporation Analysis – October 2015 Update $LRCX
Amphenol Corporation Analysis – October 2015 Update $APH
NetApp Inc. Analysis – September 2015 Update $NTAP
EMC Corporation Analysis – September 2015 Update $EMC
Analog Devices Inc. Analysis – September 2015 Update $ADI
Garmin Limited Analysis – September 2015 Update $GRMN
Texas Instruments Inc Analysis – September 2015 Update $TXN
My Personal Holdings: Apple Inc. – September 2015 Update $AAPL

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

MTS Systems Corporation Analysis – July 2015 Update $MTSC

mts_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how MTS Systems Corporation (MTSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors. Testing segment’s testing hardware, software and services solutions help customers improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. Test also sells a range of accessories and spare parts, as well as services, including installation, calibration, maintenance, training and consulting. MTS’ sensors segment provides controls for a range of industrial and vehicular applications. The segment’s customer industries include manufacturers of plastic injection molding machines, steel mills, fluid power, oil and gas, medical, wood product processing equipment, mobile equipment, and energy.

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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $64.73
MG Value $71.38
MG Opinion Fairly Valued
Value Based on 3% Growth $45.34
Value Based on 0% Growth $26.58
Market-implied growth rate 6.10%
NCAV $7.49
PEmg 20.70
Current Ratio 1.62
PB Ratio 3.98

Balance Sheet – March 2015

Current Assets $359,700,000
Current Liabilities $221,700,000
Total Debt $0
Total Assets $493,300,000
Intangible Assets $47,700,000
Total Liabilities $245,900,000
Outstanding Shares 15,200,000

Earnings Per Share

2015 (estimate) $3.08
2014 $2.73
2013 $3.64
2012 $3.21
2011 $3.24
2010 $1.14
2009 $1.03
2008 $2.80
2007 $2.29
2006 $2.04
2005 $1.81

Earnings Per Share – ModernGraham

2015 (estimate) $3.13
2014 $3.03
2013 $2.94
2012 $2.49
2011 $2.12
2010 $1.66

Dividend History

Free Cash Flow

Conclusion:

MTS Systems Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the small company size, low current ratio, insufficient earnings growth over the last ten years, along with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.12 in 2011 to an estimated $3.13 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 6.1% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MTS Systems Corporation (MTSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

[/level-mg-stocks-screens-subscriber]

MTS Systems Corporation Quarterly Valuation – April 2015 $MTSC

mts_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – March 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how MTS Systems Corporation (MTSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors. Testing segment’s testing hardware, software and services solutions help customers improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. Test also sells a range of accessories and spare parts, as well as services, including installation, calibration, maintenance, training and consulting. MTS’ sensors segment provides controls for a range of industrial and vehicular applications. The segment’s customer industries include manufacturers of plastic injection molding machines, steel mills, fluid power, oil and gas, medical, wood product processing equipment, mobile equipment, and energy.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $75.31
MG Value $87.08
MG Opinion Fairly Valued
Value Based on 3% Growth $48.58
Value Based on 0% Growth $28.48
Market-implied growth rate 6.99%
NCAV $7.71
PEmg 22.48
Current Ratio 1.67
PB Ratio 4.53

Balance Sheet – December 2014

Current Assets $363,600,000
Current Liabilities $217,900,000
Total Debt $0
Total Assets $499,900,000
Intangible Assets $48,300,000
Total Liabilities $245,700,000
Outstanding Shares 15,300,000

Earnings Per Share

2015 (estimate) $3.75
2014 $2.73
2013 $3.64
2012 $3.21
2011 $3.24
2010 $1.14
2009 $1.03
2008 $2.80
2007 $2.29
2006 $2.04
2005 $1.81

Earnings Per Share – ModernGraham

2015 (estimate) $3.35
2014 $3.03
2013 $2.94
2012 $2.49
2011 $2.12
2010 $1.66

Dividend History

Conclusion:

MTS Systems Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, small company size, and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.12 in 2011 to an estimated $3.35 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 6.99% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MTS Systems Corporation (MTSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in MTS Systems Corporation (MTSC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

MTS Systems Corporation Quarterly Valuation – January 2015 $MTSC

mts_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how MTS Systems Corporation (MTS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors segment, based upon global similarities within their markets, products, operations and distribution. During the fiscal year ended September 29, 2013 (fiscal 2013), the Test and Sensors segments represent approximately 80% and 20% of Company revenue, respectively. In June 2014, MTS acquired Roehrig Engineering, Inc., testing systems utilizing electric and electromagnetic actuation technology.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $72.66
MG Value $101.23
MG Opinion Undervalued
Value Based on 3% Growth $43.94
Value Based on 0% Growth $25.76
Market-implied growth rate 7.74%
NCAV $7.95
PEmg 23.97
Current Ratio 1.73
PB Ratio 4.31

Balance Sheet – September 2014

Current Assets $351,000,000
Current Liabilities $203,000,000
Total Debt $0
Total Assets $487,400,000
Intangible Assets $47,300,000
Total Liabilities $229,300,000
Outstanding Shares 15,300,000

Earnings Per Share

2014 $2.73
2013 $3.64
2012 $3.21
2011 $3.24
2010 $1.14
2009 $1.03
2008 $2.80
2007 $2.29
2006 $2.04
2005 $1.81
2004 $1.35

Earnings Per Share – ModernGraham

2014 $3.03
2013 $2.94
2012 $2.49
2011 $2.12
2010 $1.66
2009 $1.94

Dividend History

Conclusion:

MTS Systems Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the small size, low current ratio, and the high PEmg and PB ratios. Meanwhile the Enterprising Investor has no initial concerns with the company.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.66 in 2010 to $3.03 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 7.74% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of MTS Systems Corporation (MTSC) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MTS Systems Corporation (MTSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in MTS Systems Corporation (MTSC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

MTS Systems Corporation Quarterly Stock Valuation – September 2014 $MTSC

mts_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how MTS Systems Corp (MTSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors segment, based upon global similarities within their markets, products, operations and distribution. During the fiscal year ended September 29, 2013 (fiscal 2013), the Test and Sensors segments represent approximately 80% and 20% of Company revenue, respectively. In June 2014, MTS acquired Roehrig Engineering, Inc., testing systems utilizing electric and electromagnetic actuation technology.
MTSC Chart

MTSC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $68.69
MG Value $123.86
MG Opinion Undervalued
Value Based on 3% Growth $47.04
Value Based on 0% Growth $27.57
Market-implied growth rate 6.34%
NCAV $7.54
PEmg 21.17
Current Ratio 1.67
PB Ratio 4.10

Balance Sheet – 6/28/2014

Current Assets $343,600,000
Current Liabilities $206,300,000
Total Debt $0
Total Assets $482,800,000
Intangible Assets $50,000,000
Total Liabilities $229,900,000
Outstanding Shares 15,080,000

Earnings Per Share

2014 (estimate) $3.37
2013 $3.64
2012 $3.21
2011 $3.24
2010 $1.14
2009 $1.03
2008 $2.68
2007 $2.29
2006 $2.02
2005 $1.79
2004 $1.35

Earnings Per Share – ModernGraham

2014 (estimate) $3.24
2013 $2.94
2012 $2.48
2011 $2.10
2010 $1.63
2009 $1.90

Dividend History
MTSC Dividend Chart

MTSC Dividend data by YCharts

Conclusion:

MTS Systems Corp qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns including the small market cap size, the low current ratio, and the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.63 in 2010 to an estimated $3.24 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.34% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of MTS Systems Corp (MTSC) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MTS Systems Corp (MTSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in MTS Systems Corp (MTSC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

MTS Systems Corp Quarterly Valuation – June 2014 $MTSC

mts_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how MTS Systems Corp (MTSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors segment, based upon global similarities within their markets, products, operations and distribution. During the fiscal year ended September 29, 2013 (fiscal 2013), the Test and Sensors segments represent approximately 80% and 20% of Company revenue, respectively. In June 2014, MTS acquired Roehrig Engineering, Inc., testing systems utilizing electric and electromagnetic actuation technology.

MTSC Chart

MTSC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $67.88
MG Value $123.86
MG Opinion Undervalued
Value Based on 3% Growth $47.04
Value Based on 0% Growth $27.57
Market-implied growth rate 6.21%
NCAV $8.31
PEmg 20.92
Current Ratio 1.81
PB Ratio 4.15

Balance Sheet – 3/29/2014

Current Assets $333,600,000
Current Liabilities $184,500,000
Total Debt $0
Total Assets $455,600,000
Intangible Assets $34,100,000
Total Liabilities $207,500,000
Outstanding Shares 15,180,000

Earnings Per Share

2014 (estimate) $3.37
2013 $3.64
2012 $3.21
2011 $3.24
2010 $1.14
2009 $1.03
2008 $2.68
2007 $2.29
2006 $2.02
2005 $1.79
2004 $1.35

Earnings Per Share – ModernGraham

2014 (estimate) $3.24
2013 $2.94
2012 $2.48
2011 $2.10
2010 $1.63
2009 $1.90

Dividend History

MTSC Dividend Chart

MTSC Dividend data by YCharts

Conclusion:

MTS Systems Corp qualifies for the Enterprising Investor but not the Defensive Investor, who is concerned with the small size of the company, the low current ratio, and the high PEmg and PB ratios.  The company passes all of the Enterprising Investor requirements, so the investor type does not have any major initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of General Electric (GE) and ModernGraham’s valuation of Illinois Tool Works (ITW).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.63 in 2010 to an estimated $3.24 for 2014.  This level of demonstrated growth is stronger than the market’s implied estimate of 6.21% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of MTS Systems Corp (MTSC) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MTS Systems Corp (MTSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in MTS Systems Corp (MTSC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

MTS Systems Corp (MTSC) Quarterly Valuation – March 2014

mts_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how MTS Systems Corporation fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MTS Systems Corporation (MTS) is a global supplier of test systems and position sensors. The Company’s operations are organized and managed in two business segments: the Test segment and the Sensors segment, based upon global similarities within their markets, products, operations and distribution. The Test segment (Test) provides testing solutions, including hardware, software and service. Products are used by customers in their development of new products to characterize the product’s mechanical properties. The Sensors segment (Sensors) products are used by industrial machinery and mobile equipment manufacturers to automate the operation of their products safety and end-user productivity. During the fiscal year ended September 29, 2013 (fiscal 2013), the Test and Sensors segments represent approximately 80% and 20% of Company revenue, respectively.

MTSC Chart

MTSC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $68.13
MG Value $128.62
MG Opinion Undervalued
Value Based on 3% Growth $48.44
Value Based on 0% Growth $28.40
Market-implied growth rate 5.95%
NCAV $8.71
PEmg 20.39
Current Ratio 1.92
PB Ratio 4.10

Balance Sheet – 12/31/2013

Current Assets $325,400,000
Current Liabilities $169,900,000
Total Debt $0
Total Assets $446,500,000
Intangible Assets $35,700,000
Total Liabilities $192,300,000
Outstanding Shares 15,280,000

Earnings Per Share

2014 (estimate) $3.66
2013 $3.64
2012 $3.21
2011 $3.24
2010 $1.14
2009 $1.03
2008 $2.68
2007 $2.29
2006 $2.02
2005 $1.79
2004 $1.35

Earnings Per Share – ModernGraham

2014 (estimate) $3.34
2013 $2.94
2012 $2.48
2011 $2.10
2010 $1.63
2009 $1.90

Dividend History

MTSC Dividend Chart

MTSC Dividend data by YCharts

Conclusion:

MTS Systems Corp passes all of the requirements of the Enterprising Investor, but does not qualify for the Defensive Investor.  For that investor type, the company’s overall size is too small, the current ratio is too low, and it is trading at high PEmg and PB ratios.  As a result, Enterprising Investors should feel comfortable proceeding with further research into the company and its competitors, including a review of 5 Undervalued Companies for the Enterprising Investor and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation side of things, the company looks very strong after growing its EPSmg (normalized earnings) from $1.63 in 2010 to an estimated $3.34 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 5.95% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MTS Systems Corporation (MTSC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in MTS Systems Corporation (MTSC) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the company’s website; this article is not affiliated with the company in any manner.

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