Critical Survey: Nordson Corporation (NDSN) & MSC Industrial Direct (MSM)

Nordson Corporation (NASDAQ: NDSN) and MSC Industrial Direct (NYSE:MSM) are both mid-cap industrial products companies, but which is the better business? We will contrast the two businesses based on the strength of their risk, valuation, profitability, earnings, analyst recommendations, institutional ownership and dividends.

Insider and Institutional Ownership

65.5% of Nordson Corporation shares are owned by institutional investors. Comparatively, 75.6% of MSC Industrial Direct shares are owned by institutional investors. 2.2% of Nordson Corporation shares are owned by company insiders. Comparatively, 31.3% of MSC Industrial Direct shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares Nordson Corporation and MSC Industrial Direct’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Nordson Corporation 14.57% 32.99% 10.73%
MSC Industrial Direct 8.07% 20.05% 11.38%

Earnings and Valuation

This table compares Nordson Corporation and MSC Industrial Direct’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Nordson Corporation $2.00 billion 3.52 $548.73 million $5.02 24.32
MSC Industrial Direct $2.88 billion 1.19 $443.59 million $3.99 18.97

Nordson Corporation has higher revenue, but lower earnings than MSC Industrial Direct. MSC Industrial Direct is trading at a lower price-to-earnings ratio than Nordson Corporation, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Nordson Corporation has a beta of 1.37, suggesting that its share price is 37% more volatile than the S&P 500. Comparatively, MSC Industrial Direct has a beta of 0.53, suggesting that its share price is 47% less volatile than the S&P 500.

Dividends

Nordson Corporation pays an annual dividend of $1.20 per share and has a dividend yield of 1.0%. MSC Industrial Direct pays an annual dividend of $1.80 per share and has a dividend yield of 2.4%. Nordson Corporation pays out 23.9% of its earnings in the form of a dividend. MSC Industrial Direct pays out 45.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Nordson Corporation has increased its dividend for 6 consecutive years and MSC Industrial Direct has increased its dividend for 3 consecutive years.

Analyst Ratings

This is a breakdown of current recommendations for Nordson Corporation and MSC Industrial Direct, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Nordson Corporation 0 3 6 0 2.67
MSC Industrial Direct 1 10 4 0 2.20

Nordson Corporation presently has a consensus target price of $139.71, indicating a potential upside of 14.45%. MSC Industrial Direct has a consensus target price of $89.58, indicating a potential upside of 18.32%. Given MSC Industrial Direct’s higher probable upside, analysts plainly believe MSC Industrial Direct is more favorable than Nordson Corporation.

Summary

Nordson Corporation beats MSC Industrial Direct on 11 of the 17 factors compared between the two stocks.

About Nordson Corporation

Nordson Corporation engineers, manufactures and markets differentiated products and systems used to dispense, apply and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids, to test and inspect for quality, and to treat and cure surfaces. The Company’s segments include Adhesive Dispensing Systems, Advanced Technology Systems and Industrial Coating Systems. The Adhesive Dispensing Systems segment delivers its precision dispensing and processing technology to various markets. The Advanced Technology Systems segment integrates its product technologies found in progressive stages of a customer’s production process, such as surface treatment, precisely controlled automated, and post-dispense bond testing, optical inspection and X-ray inspection. The Industrial Coating Systems segment provides equipment used primarily for applying coatings, paint, finishes, sealants and other materials, and for curing and drying of dispensed material.

About MSC Industrial Direct

MSC Industrial Direct Co., Inc. is a North American distributor of metalworking and maintenance, repair and operations (MRO) products and services. The Company’s range of MRO products include cutting tools, measuring instruments, tooling components, metalworking products, fasteners, flat stock, raw materials, abrasives, machinery hand and power tools, safety and janitorial supplies, plumbing supplies, materials handling products, power transmission components and electrical supplies. The Company serves a range of customers throughout the United States, Canada and the United Kingdom, from individual machine shops, to manufacturing companies, to government agencies, such as the General Services Administration and the Department of Defense. The Company also serves durable and non-durable goods manufacturing, education and healthcare markets, among others. As of September 3, 2016, the Company had operated a network of 12 customer fulfillment centers.

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