MTSC - MTS Systems Corp

NASDAQ: MTSC

Small Cap Blend. Sector: Technology / Scientific & Technical Instruments

In today’s market it is very difficult to find companies with a good risk / reward ratio. Then, you should not expect to find the perfect company in today’s market situation…..But I think that this company would outperform the SP500 the next weeks.

Be careful with the average volume, which is very low.

Daily chart:

We can see that MTSC is moving, like NRG, within a channel with support in 20 and a resistance in 26. Also, the chart pattern looks like a wedge. If we look for the divergences, supports and resistances in the chart, it seems to have high possibilities to be broken to the upside.

Weekly chart:

Bullish signals: Watch the big divergence in the Money Flow indicator and the MACD. The Stochastic looks like it is ready to overcome the 20 level, which is very bullish. The 13 SMA is the resistance moving average.

Fundamentals:

MTS Systems Corporation supplies mechanical testing systems and industrial position sensors in North America, Europe, and Asia. The company’s Test segment offers road and track simulators, tire performance, and transmission test systems for automobile, truck, motorcycle, construction equipment, agricultural equipment, and off-road vehicle manufacturers and their suppliers. It also offers systems to test wear and performance of implants, prostheses, and other medical and dental materials and devices for bio-mechanical applications. In addition, this segment provides products, systems, and software for structural tests on aircraft and space vehicles, as well as to test sub-systems, components, and materials primarily to the manufacturers of commercial, military, and private aircraft and their suppliers. The company’s Sensors segment offers products based on magnetostriction technology to the manufacturers of plastic injection molding machines, steel mills, fluid power, oil and gas, medical, wood product processing equipment, mobile equipment, and alternative energy; and products used to measure fluid displacement, such as liquid levels for customers in the process industries. MTS Systems sells its products and systems through a direct sales force, independent sales representatives, and independent distributors, as well as through the Internet and catalog. The company was founded in 1966 and is headquartered in Eden Prairie, Minnesota.

On 4/22/09 MTS Systems Corporation reported fiscal second quarter earnings per share of $0.44, a decrease of 42 % compared to second quarter fiscal 2008, on net income of $7.5 million. (MTSC Fiscal Year ends in September).

When MTSC reported 2nd quarter 2009 earnings of $0.44 per share, it met the consensus estimate of the 2 analysts covering the company.

The analyst's estimates ranged from a high of $0.48 to a low of $0.39, with a median estimate of $0.42.

MTSC is expected to announce 3rd quarter earnings the week of July 20, 2009. For the coming quarter, analysts estimate MTSC will earn $0.28 per share, a 56.92% decrease over the prior year 3rd quarter results.

Key Statistics:

Market Cap: 353.80M

EPS: $ 2.49

P/E: 8.48 - Industry Average: 22.84.

Forward P/E (fye 27-Sep-10): 12.95

Share Price: $ 21.11

Book Value Per Share (mrq): $12.057

Price/Book (mrq):1.75 – Industry average: 2.67.

Enterprise Value/EBITDA (ttm): 4.147

Profit Margin (ttm): 9.17%

Operating Margin (ttm): 13.12%

Beta:0.87

Competitors: ITW Illinois Tool Work Inc.

MTSC is one of the more profitable companies in the Scientific & Technical Instr. industry with a net margin of 9.17%. Its net margin and operating margin are both among the strongest of any peer, while its gross margin is inline with the industry median.

Total DEBT Evolution (values in thousands):

Q3 2008 $8,146 / Q4 2008 $26,646 / Q1 2009 $42,692 / Q2 2009 $41,434

I do not like that the level of the debt is increasing Q over Q. But, MTSC's debt to total capital ratio, at 17.02%, is in-line with the Scientific & Technical Instr. industry's norm. With an Interest Coverage ratio of 46.62 and a Quick ratio of 1.31 the company should be able to comfortably repay its debt.

Total revenue evolution (values in thousands):

Q3 2008 $ 116,886 / Q4 2008 $ 124,069 / Q1 2009 $ 116,609 / Q2 2009 $ 107,652

Revenues are decreasing Q over Q.

Income Available to Common Excluding Extra. Items (values in thousands):

Q3 2008 $10,985 / Q4 2008 $14,499 / Q1 2009 $9,751 / Q2 2009 $7,448

Incomes are decreasing Q over Q.

Cash Flow (values in thousands):
Q3 2008 15,530 / Q4 2008 9,754 / Q1 2009 (9,313) / Q2 2009 (14,750)

Cash is decreasing Q over Q.

I would like to note that, the company is very dependent on the economic activity, since it is the supplier for construction equipment, agricultural equipment, and off-road vehicle manufacturers and their suppliers.

If we expect an estabilization on the economic situation, MTSC is a good bet, since It is underestimated by the market.

We can wait to buy on the rupture of the wedge to the upside. If this is the case, do not forget your STOP LOSS.

Other interesting matters:
Insiders:

http://finance.yahoo.com/q/it?s=MTSC

http://insidercow.com/history/company.jsp?company=mtsc&B1=Search!

Recent news and articles:

Five Thinly Traded Stocks with Plenty of Upside

http://seekingalpha.com/article/123969-five-thinly-traded-stocks-with-plenty-of-upside