MTS SYSTEMS CORP. $32 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 17.5 million; Market cap: $560.0 million; WSSF Rating: Average) makes equipment and software that carmakers and other manufacturers use to test the mechanical behavior of materials, machines and structures. This helps them reduce production errors and costs. Testing systems provide 80% of MTS’s revenue. The company also makes sensors that improve the performance of automated industrial machinery. MTS operates in a narrow field and gets most of its revenue from customers in cyclical industries, such as automotive and aerospace. That makes it riskier than Genuine Parts and Snap-On. MTS spends around 5% of its revenue of $24 a share on research. That helps it maintain its leading share of its niche markets. Overseas markets also supply two-thirds of its revenue, which cuts its exposure to the struggling North American auto industry. This strong commitment to research is also helping MTS expand into new fields, such as testing systems for medical device makers. For example, manufacturers use MTS’s motion simulators to make artificial hips, knees and other implants more durable. In its second fiscal quarter ended March 29, 2008, MTS’s earnings grew 31.1%, to $13.5 million from $10.3 million a year earlier. However, the latest quarter included tax benefits of $3.7 million. The company spent $4.5 million on share buybacks in the latest quarter. Consequently, earnings per share rose 35.7%, to $0.76 from $0.56. Revenue grew 12.5%, to $114.5 million from $101.8 million. Favorable foreign currency rates accounted for $7 million of the revenue increase. MTS recently sold some of its slower-growing businesses. It now has $129.4 million or $7.38 a share in cash, and just $1.2 million in long-term debt. The company will probably use some of its excess cash to buy back shares. Earnings in fiscal 2008 should rise to $2.48 a share, and the stock trades at just 12.9 times that figure. It also trades at 1.3 times its sales per share of $24. MTS has a long history of increasing dividends. The current rate of $0.60 yields 1.9%. MTS Systems is a buy.
MTS Systems Corp. $32 - Nasdaq symbol MTSC
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