MTS SYSTEMS CORP. $37 - Nasdaq symbol MTSC

MTS SYSTEMS CORP. $37 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.3 million; Market cap: $566.1 million; Price-to-sales ratio: 1.6; Dividend yield: 1.6%; TSINetwork Rating: Average; www.mts.com) makes equipment and software that tests materials, machines and structures. This helps manufacturers lower their costs and improve the quality of their products. MTS recently paid $6.3 million, or $0.24 a share, to settle a patent-infringement lawsuit. Even so, the company’s earnings rose 6.8%, to $18.6 million, in the fiscal year ended October 2, 2010. In the prior year, MTS earned $17.4 million. Earnings per share rose 10.7%, to $1.14 from $1.03, on fewer shares outstanding. Most of the earnings increase was the result of a 12% cut MTS made to its workforce in 2009. The move was in response to falling sales, which dropped 8.5% in latest fiscal year, to $374.1 million from $408.9 million. However, orders for new equipment rose 24%. The company’s order backlog of $214 million is equal to roughly six months of revenue. MTS has little debt, and holds cash of $76.6 million, or $5.02 a share. That will let it keep developing new testing systems for increasingly complex machines, such as electric-car engines. MTS typically spends about 4% of its revenue on research. The company should earn $1.60 a share in fiscal 2011. The stock trades at 21.3 times that estimate. That’s a high p/e ratio for a company so closely tied to the cyclical automotive and aerospace industries. MTS Systems is a hold.