Kennametal (NYSE: KMT) and NN (NASDAQ:NNBR) are both industrials companies, but which is the better investment? We will contrast the two businesses based on the strength of their institutional ownership, risk, dividends, profitabiliy, analyst recommendations, earnings and valuation.

Profitability

This table compares Kennametal and NN’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Kennametal 7.50% 16.87% 6.93%
NN -2.73% 11.50% 2.64%

Analyst Ratings

This is a summary of recent ratings for Kennametal and NN, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Kennametal 0 6 5 0 2.45
NN 0 1 1 0 2.50

Kennametal currently has a consensus price target of $41.00, indicating a potential downside of 2.17%. NN has a consensus price target of $22.50, indicating a potential downside of 21.19%. Given Kennametal’s higher possible upside, research analysts plainly believe Kennametal is more favorable than NN.

Dividends

Kennametal pays an annual dividend of $0.80 per share and has a dividend yield of 1.9%. NN pays an annual dividend of $0.28 per share and has a dividend yield of 1.0%. Kennametal pays out -98.8% of its earnings in the form of a dividend. NN pays out -33.3% 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. NN has increased its dividend for 6 consecutive years. Kennametal is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk & Volatility

Kennametal has a beta of 1.91, suggesting that its share price is 91% more volatile than the S&P 500. Comparatively, NN has a beta of 0.86, suggesting that its share price is 14% less volatile than the S&P 500.

Institutional and Insider Ownership

99.2% of Kennametal shares are owned by institutional investors. Comparatively, 97.0% of NN shares are owned by institutional investors. 3.0% of Kennametal shares are owned by insiders. Comparatively, 2.8% of NN shares are owned 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.

Valuation & Earnings

This table compares Kennametal and NN’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Kennametal $2.01 billion 1.68 $281.32 million ($0.81) -51.74
NN $847.58 million 0.93 $138.31 million ($0.84) -33.99

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

Summary

Kennametal beats NN on 14 of the 16 factors compared between the two stocks.

Kennametal Company Profile

Kennametal Inc. is a supplier of tooling, engineered components and materials consumed in production processes. The Company operates through two segments: Industrial and Infrastructure. The Industrial segment generally serves customers that operate in industrial end markets, such as transportation, general engineering, aerospace and defense. The Infrastructure segment generally serves customers that operate in the earthworks and energy sectors supporting primary industries, such as oil and gas, power generation, underground, surface and hard-rock mining, highway construction and road maintenance. It provides wear-resistant products, application engineering and services backed by material science serving customers across various sectors. The Company’s product offerings include a selection of standard and customized technologies for metalworking, such as metal cutting tools, tooling systems and services, as well as materials, such as cemented tungsten carbide products and super alloys.

NN Company Profile

NN, Inc. is a diversified industrial company and a manufacturer of high precision bearing components, industrial plastic products and precision metal components to a range of markets on a global basis. The Company operates through three segments: the Precision Bearing Components Group, the Precision Engineered Products Group and the Autocam Precision Components Group. Within its Precision Bearing Components Group, it manufactures and supplies high precision bearing components, consisting of balls, cylindrical rollers, tapered rollers, spherical rollers and metal retainers, for bearing and constant velocity (CV)-joint. Within its Precision Engineered Products Group, it designs and manufactures a range of high-precision metal and plastic components, assemblies and finished devices. Within its Autocam Precision Components Group, the Company manufactures highly engineered, difficult-to-manufacture precision metal components and subassemblies.

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