MTS Systems Corporation (MTSC - Snapshot Report) carried its momentum into the first quarter of its fiscal 2012 and delivered another solid beat on both earnings and revenue. This prompted analysts to raise their estimates yet again, sending the stock to a Zacks #1 Rank (Strong Buy) stock.
Despite the recent run up in shares, valuation still looks reasonable at just 13x forward earnings.
MTS Systems Corporation operates two separate businesses: the Sensors division and the Test division.
Test systems (81% of total revenue) enable users to measure the performance, durability, and safety of products like building materials, automobiles, and aerospace products prior to production. The Sensors business (19%) produces sensitive measuring equipment to monitor the position of machinery and liquid levels during production operations.
The company is headquartered in Eden Prairie, Minnesota and has a market cap of $819 million.
First Quarter Results
MTS Systems reported its first quarter 2012 results on February 2. Earnings per share came in at 98 cents, beating the Zacks Consensus Estimate of 83 cents. It was a 14% increase over the same quarter in 2011.
Revenue surged 26% to $133.7 million, beating the Zacks Consensus Estimate of $124.0 million. This was driven by 32% growth in Test systems.
Operating income was up 27% year-over-year, driven by a higher gross margin and fixed expense leverage.
Analysts revised their estimates higher yet again off the strong quarter, sending the stock to a Zacks #1 Rank (Strong Buy).
Take a look and the stair-step movement in consensus estimates over the last several months:
The Zacks Consensus Estimate for 2012 is now $3.81, representing 17% growth over 2011 EPS. The 2013 consensus estimate is currently $4.11, corresponding with 8% growth.
Valuation Still Reasonable
Although shares of MTSC have risen 28% since I last wrote about it on December 28, valuation still looks reasonable.
Shares trade at 13x 12-month forward earnings, a discount to the industry median of 15x and its historical median of 17x.
Its price to book ratio of 3.6 is also below the peer group multiple of 5.3.
The company also pays a dividend that yields a solid 1.9%.
The Bottom Line
With estimates still rising and valuation still reasonable, MTS Systems has plenty of room to continue running higher.
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Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.