Contrasting Federal Signal (NYSE:FSS) & Alamo Group (NYSE:ALG)

Federal Signal (NYSE:FSS) and Alamo Group (NYSE:ALG) are both industrials companies, but which is the superior business? We will compare the two businesses based on the strength of their analyst recommendations, earnings, institutional ownership, profitability, dividends, valuation and risk.

Dividends

Federal Signal pays an annual dividend of $0.60 per share and has a dividend yield of 0.5%. Alamo Group pays an annual dividend of $1.36 per share and has a dividend yield of 1.0%. Federal Signal pays out 12.4% of its earnings in the form of a dividend. Alamo Group pays out 21.2% 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. Federal Signal has raised its dividend for 3 consecutive years and Alamo Group has raised its dividend for 14 consecutive years. Alamo Group is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional and Insider Ownership

92.7% of Federal Signal shares are owned by institutional investors. Comparatively, 92.4% of Alamo Group shares are owned by institutional investors. 3.3% of Federal Signal shares are owned by company insiders. Comparatively, 1.1% of Alamo Group 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.

Earnings & Valuation

This table compares Federal Signal and Alamo Group”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Federal Signal	$2.18 billion	3.22	$246.60 million	$4.82	23.90
Alamo Group	$1.60 billion	1.06	$103.80 million	$6.41	21.88

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

Risk & Volatility

Federal Signal has a beta of 1.22, indicating that its share price is 22% more volatile than the S&P 500. Comparatively, Alamo Group has a beta of 1.08, indicating that its share price is 8% more volatile than the S&P 500.

Profitability

This table compares Federal Signal and Alamo Group’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Federal Signal	11.65%	21.31%	12.91%
Alamo Group	4.72%	9.43%	6.56%

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Federal Signal and Alamo Group, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Federal Signal	0	2	4	0	2.67
Alamo Group	1	2	1	1	2.40

Federal Signal currently has a consensus target price of $135.25, suggesting a potential upside of 17.40%. Alamo Group has a consensus target price of $161.00, suggesting a potential upside of 14.79%. Given Federal Signal’s stronger consensus rating and higher possible upside, research analysts clearly believe Federal Signal is more favorable than Alamo Group.

Summary

Federal Signal beats Alamo Group on 14 of the 18 factors compared between the two stocks.

About Federal Signal

Federal Signal Corporation designs and manufactures products and equipment for environmental services, public safety and security. Its customers include municipalities, contractors, industrial businesses and public safety organizations. Through its Environmental Solutions Group, the company makes street sweepers, sewer cleaners, industrial vacuum loaders, waterblasting equipment and related vehicles and services. Its Safety and Security Systems Group provides warning sirens, emergency vehicle equipment and systems for public notification and communication.

About Alamo Group

Alamo Group Inc. is a manufacturer of equipment used to maintain infrastructure and manage vegetation. Its products serve municipal, utility, contractor and agricultural customers, including equipment for roadside mowing, street and vegetation maintenance, snow removal and land management. The company also makes agricultural machinery such as rotary cutters, mowers, tillage and hay tools. Its product portfolio includes equipment sold under brands such as Bush Hog, Gradall, Ventrac and McConnel. Founded in 1969 and headquartered in Seguin, Texas, Alamo Group serves customers in North America and international markets through its manufacturing operations and dealer network.