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Growth & Income

MTS Systems Corp. (MTSC - Snapshot Report) reported stellar third quarter 2012 results this month with earnings comfortably exceeding expectations. The Zacks Consensus Estimates for fiscal years 2012 and 2013 moved higher in response, pushing the stock to a Zacks #2 Rank (Buy).

The dividend yield for this supplier of high performance test systems and position sensors is solid at 2.43% after the recent hike in the cash dividend payout to 30 cents per share, making the stock much more attractive for growth & income investors.

MTS Systems Reports Strong 3Q

On August 2, 2012, MTS Systems reported third quarter earnings of $1.07 per share, exceeding the Zacks Consensus Estimate by 14 cents or 15.1%. Earnings grew 55.0% year over year, primarily due to strong revenue growth in the reported quarter.

Revenue jumped 21.3% year over year to $141.7 million, thanks to a strong performance from the Test segment (revenue up 30%), which fully offset the weak results in the Sensors segment (revenue down 8%).

During the quarter, MTS Systems signed an agreement with the U.S. Attorney’s Office for the District of Minnesota (USAO) to settle a U.S. Department of Justice (DOJ) investigation related to the company’s past disclosures on a government certifications-related contract award for $7.75 million.

Positive Outlook for Fiscal 2012

MTS Systems reiterated its earlier outlook for fiscal year 2012. Revenue is projected to grow in the mid-to-high teens range, while earnings are expected to grow in the low-to-mid-teens range.

The Zacks Consensus Estimate for 2012 soared 15 cents or 4.2% over the last 30 days to $3.74 per share. The Zacks Consensus Estimate for 2013 surged 13 cents or 3.2% over the same time to $4.23.

Dividend

MTS Systems also offers a dividend yield of 2.43%. It started paying a regular cash dividend way back in 1990 and since then has raised the dividend payout substantially (33.3% in calendar year 2010, 25% in 2011 and another 20% in 2012).

Valuation

Shares of MTS Systems are currently trading at 13.2X forward earnings, a discount to the industry average of 20.8X. Additionally, its price-to-sales multiple of 1.48 is lower than the peer average of 1.69. This indicates that the stock is undervalued.

To Sum Up…

Given the underlying growth, recent earnings surprises, strong dividend yield and attractive valuation, MTS Systems offers investors a good return on their investment.

Minnesota-based MTS Systems develops testing solutions (hardware, software and aftermarket) and industrial position sensors. Its solutions cater to varied types of industries including Aerospace, Automotive, Biomedical, Materials Sciences, Rail, Renewable energy, Fluid power, Construction machinery and Agriculture machinery to name a few. The company has a market cap of $794.53 million.

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