Analyzing Applied Industrial Technologies (NYSE:AIT) and Ferguson (NYSE:FERG)

Ferguson (NYSE:FERG) and Applied Industrial Technologies (NYSE:AIT) are both large-cap industrials companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, risk, earnings, analyst recommendations, dividends, institutional ownership and profitability.

Dividends

Ferguson pays an annual dividend of $3.56 per share and has a dividend yield of 1.5%. Applied Industrial Technologies pays an annual dividend of $2.04 per share and has a dividend yield of 0.7%. Ferguson pays out 41.8% of its earnings in the form of a dividend. Applied Industrial Technologies pays out 18.1% 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. Applied Industrial Technologies has raised its dividend for 16 consecutive years.

Earnings and Valuation

This table compares Ferguson and Applied Industrial Technologies”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ferguson	$31.32 billion	1.48	$1.86 billion	$8.51	28.23
Applied Industrial Technologies	$5.06 billion	2.20	$414.52 million	$11.30	26.99

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

Analyst Ratings

This is a breakdown of current ratings and target prices for Ferguson and Applied Industrial Technologies, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ferguson	0	6	12	1	2.74
Applied Industrial Technologies	0	0	7	0	3.00

Ferguson presently has a consensus price target of $287.44, suggesting a potential upside of 19.64%. Applied Industrial Technologies has a consensus price target of $380.00, suggesting a potential upside of 24.60%. Given Applied Industrial Technologies’ stronger consensus rating and higher possible upside, analysts clearly believe Applied Industrial Technologies is more favorable than Ferguson.

Insider & Institutional Ownership

82.0% of Ferguson shares are held by institutional investors. Comparatively, 93.5% of Applied Industrial Technologies shares are held by institutional investors. 0.2% of Ferguson shares are held by company insiders. Comparatively, 1.6% of Applied Industrial Technologies shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Profitability

This table compares Ferguson and Applied Industrial Technologies’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Ferguson	6.82%	37.24%	12.31%
Applied Industrial Technologies	8.38%	22.68%	13.97%

Volatility & Risk

Ferguson has a beta of 1.14, indicating that its stock price is 14% more volatile than the S&P 500. Comparatively, Applied Industrial Technologies has a beta of 0.85, indicating that its stock price is 15% less volatile than the S&P 500.

Summary

Applied Industrial Technologies beats Ferguson on 10 of the 18 factors compared between the two stocks.

About Ferguson

Ferguson Enterprises Inc. distributes plumbing and heating products in North America. The company provides expertise, solutions, and products, including infrastructure, plumbing, appliances, fire, and fabrication, as well as heating, ventilation, and air conditioning (HVAC) to residential and non-residential customers. It also supplies specialist water and wastewater treatment products to residential, commercial, and infrastructure contractors, as well as supplies pipe, valves, and fittings solutions to industrial customers. In addition, it offers customized solutions, such as virtual design, fabrication, valve actuation, pre-assembly, kitting, installation, and project management services, as well as after-sales support that comprises warranty, credit, project-based billing, returns and maintenance, and repair and operations support. The company sells its products through a network of distribution centers, branches, counter service and specialist sales associates, showroom consultants, and e-commerce channels. Ferguson Enterprises Inc. was founded in 1953 and is headquartered in Newport News, Virginia.

About Applied Industrial Technologies

Applied Industrial Technologies, Inc. distributes industrial motion, power, control, and automation technology solutions in North America, Australia, New Zealand, and Singapore. It operates in two segments, Service Center Based Distribution, and Engineered Solutions. The company distributes bearings, power transmission products, engineered fluid power components and systems, specialty flow control solutions, advanced automation products, industrial rubber products, linear motion components, automation solutions, tools, safety products, oilfield supplies, and other industrial and maintenance supplies; and motors, belting, drives, couplings, pumps, hydraulic and pneumatic components, filtration supplies, valves, fittings, process instrumentation, actuators, and hoses, filtration supplies, as well as other related supplies for general operational needs of customers' machinery and equipment. It also operates fabricated rubber shops and service field crews that install, modify, and repair conveyor belts and rubber linings, as well as offer hose assemblies. In addition, the company provides technical support services; engages in the distribution of fluid power and industrial flow control products; advanced automation solutions, including machine vision, robotics, motion control, and smart technologies. It distributes industrial products through a network of service centers. The company serves various industries, including agriculture and food processing, cement, chemicals and petrochemicals, fabricated metals, forest products, industrial machinery and equipment, life sciences, mining, oil and gas, primary metals, technology, transportation, and utilities, as well as government entities. The company was formerly known as Bearings, Inc. and changed its to name to Applied Industrial Technologies, Inc. in 1997. The company was founded in 1923 and is headquartered in Cleveland, Ohio.