Head-To-Head Review: Graco (NYSE:GGG) and Kadant (NYSE:KAI)

Graco (NYSE:GGG) and Kadant (NYSE:KAI) are both industrials companies, but which is the better investment? We will compare the two businesses based on the strength of their risk, valuation, institutional ownership, analyst recommendations, earnings, profitability and dividends.

Profitability

This table compares Graco and Kadant’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Graco	22.72%	18.89%	15.47%
Kadant	9.96%	11.97%	7.41%

Insider & Institutional Ownership

93.9% of Graco shares are held by institutional investors. Comparatively, 96.1% of Kadant shares are held by institutional investors. 2.2% of Graco shares are held by insiders. Comparatively, 1.4% of Kadant shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Graco and Kadant”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Graco	$2.11 billion	6.55	$486.08 million	$2.93	28.48
Kadant	$1.02 billion	3.38	$111.60 million	$8.65	33.96

Graco has higher revenue and earnings than Kadant. Graco is trading at a lower price-to-earnings ratio than Kadant, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of recent ratings and price targets for Graco and Kadant, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Graco	0	3	2	0	2.40
Kadant	0	2	1	0	2.33

Graco currently has a consensus target price of $90.33, suggesting a potential upside of 8.24%. Kadant has a consensus target price of $340.00, suggesting a potential upside of 15.73%. Given Kadant’s higher probable upside, analysts clearly believe Kadant is more favorable than Graco.

Dividends

Graco pays an annual dividend of $1.10 per share and has a dividend yield of 1.3%. Kadant pays an annual dividend of $1.36 per share and has a dividend yield of 0.5%. Graco pays out 37.5% of its earnings in the form of a dividend. Kadant pays out 15.7% 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. Graco has increased its dividend for 29 consecutive years and Kadant has increased its dividend for 12 consecutive years. Graco is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk and Volatility

Graco has a beta of 1.09, indicating that its stock price is 9% more volatile than the S&P 500. Comparatively, Kadant has a beta of 1.26, indicating that its stock price is 26% more volatile than the S&P 500.

Summary

Graco beats Kadant on 11 of the 17 factors compared between the two stocks.

About Graco

Graco Inc. designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide. The Contractor segment offers sprayers to apply paint to walls and other structures; two-component proportioning systems that are used to spray polyurethane foam and polyurea coatings; and viscous coatings to roofs, as well as markings on roads, parking lots, athletic fields, and floors. The Industrial segment provides liquid finishing equipment, paint circulating and supply pumps, paint circulating advanced control systems, plural component coating proportioners, and accessories and spare parts; equipment that pumps, meters, mixes and dispenses sealant, adhesive, and composite materials; and gel-coat equipment, chop and wet-out systems, resin transfer molding systems and applicators, and precision dispensing solutions. It also offers powder finishing products to coat powder finishing on metals under the Gema and SAT brands. The Process segment provides pumps to move and dispense chemicals, water, wastewater, petroleum, food, lubricants, and other fluids; pressure valves used in the oil and natural gas industry, other industrial processes, and research facilities; and chemical injection pumping solutions for injection of chemicals into producing oil wells and pipelines. It also supplies pumps, hose reels, meters, valves, and accessories for fast oil change facilities, service garages, fleet service centers, automobile dealerships, auto parts stores, truck builders, and heavy equipment service centers; and systems, components, and accessories for the automatic lubrication of bearings, gears, and generators in industrial and commercial equipment, compressors, turbines, and on- and off-road vehicles. It sells its products through distributors, original equipment manufacturers, and home center channels, as well as to end-users. The company was incorporated in 1926 and is headquartered in Minneapolis, Minnesota.

About Kadant

Kadant Inc. supplies technologies and engineered systems worldwide. It operates in three segments: Flow Control, Industrial Processing, and Material Handling. The Flow Control segment develops, manufactures, and markets fluid-handling systems and equipment, such as rotary joints, syphons, turbulator bars, expansion joints, and engineered steam and condensate systems; and doctoring, cleaning, and filtration systems and related consumables consisting of doctor systems and holders, doctor blades, cleaning shower and fabric-conditioning systems, forming systems and wear surfaces, and water-filtration systems. The Industrial Processing segment develops, manufactures, and markets ring and rotary debarkers, stranders, chippers, engineered knife systems, industrial automation and control, recycling and approach flow systems, and virgin pulping process equipment for use in the packaging, tissue, wood products, and alternative fuel industries. The Material Handling segment offers conveying and vibratory equipment, and baling products; and manufactures and sells biodegradable absorbent granules for carriers in agricultural, home lawn and garden, professional lawn, turf, and ornamental applications, as well as for oil and grease absorption. The company markets and sells its products, services, and systems through direct sales, independent sales agents, and distributors. The company was formerly known as Thermo Fibertek, Inc. and changed its name to Kadant Inc. in July 2001. Kadant Inc. was incorporated in 1991 and is headquartered in Westford, Massachusetts.