Minnesota-based industrial giant 3M Co (NYSE: MMM) just keeps chugging along, with new leadership in the C-suite and a litany of positive, bottom line financial news heading into the last half of 2018. The downside is a decline in the company’s stock price through the first half of 2018, although market watchers see that drop as temporary.
Long-time 3M veteran Michael Roman is on board as the new chief executive officer. He clocks in at a time when MMM is hauling in record sales and with an earnings upgrade in its second-quarter outlook.
In the second quarter, MMM sales climbed 7.4 percent to $8.39 billion, up from $7.81 billion a year ago. In its quarterly release, 3M says the company’s revenue numbers exceeded analysts’ estimates of $8.32 billion. Organic local currency growth was also up by 5.6 percent.
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That followed a highly negative first-quarter report, where 3M recorded a significant decline in net income and a downward earnings-per-share guidance outlook from the company.
Still, the company’s ubiquitous Scotch tape and Post-It notes, found in retailers across the world, have boosted its brand value up to $8.9 billion, according to Interbrand, a global business branding consultancy.
Can 3M resume climbing up the Dow leaderboard? Investment industry insiders think so, but there could be some hiccups along the way.
MMM stock at a glance. MMM is trading at $202 per share with a consensus analyst one-year price estimate of $209 per share.
The stock offers a decent dividend of 2.6 percent and has a market cap of $123 billion. MMM boosted its dividends 50 years in a row, giving shareholders an added kick and helping many longtime company shareholders enter into millionaire status. The current dividend is expected to rise to nearly 3 percent in 2020.
3M stock reached an all-time high in January, approaching $260 per share, but fell back as investors who viewed MMM having an inflated share price swept in and sold off, driving MMM to $240 per share in March and to $200 by mid-summer.
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Overall, MMM dropped 16 percent in value over the first half of 2018.
Despite a rough first half, analysts seem generally bullish on 3M going forward. Of the 15 analysts who track MMM on a regular basis, 27 percent call 3M a “buy,” 46 percent call it a “hold” and 27 percent have issued a “sell” call, according to Market Realist. The company should benefit from a recent agreement with Minnesota over a polluted water issue (and a $5 billion lawsuit), with MMM giving the state $850 million to upgrade water treatment facilities.
Pros of buying MMM stock. 3M has a strong balance sheet, operating in five key business segments — industrial, safety and graphics, health care, electronics and energy, and consumer.
“3M’s financials are very stable as indicated by gross profit and net income over the past few years,” says Stephan Unger, assistant professor of economics at Saint Anselm College in New Hampshire. “Assets are growing at a constant low rate. The company is in a financially healthy condition as liabilities could almost be redeemed by their cash holdings from operating activities.”
The company’s largest competitors still stand in 3M’s shadow: “Corning ( GLW) and PPG ( PPG), both have one-quarter of 3M’s market cap, and Avery Dennison ( AVY), has just 10 percent of 3M’s market cap,” says Unger.
The stock has potential for robust share price growth.
“Currently, I’m a cautious bull on 3M,” says Allison Ostrander, an options trader at Simpler Trading, an online financial education platform. “If the price can maintain above $200, then the next target to the upside is $220. If the price is able to trade above this, then $250 to $260 will be the following targets to retest 3M’s prior highs.”
Cons of buying MMM stock. Like most major industrial conglomerates, much depends on the health of the economy.
“3M will benefit from global spending in biomedical technology, data centers and automated driving vehicles, however, this is also a vulnerability if the global economy is cooling off,” Ostrander says. “Regardless, 3M is positioned to benefit and the company is not dependent on those three avenues alone.”
Another issue could be the sharp increase in long-term debt. “That could be an indicator for increasing fundraising activity, such as corporate bond issuances,” Unger says.
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The bottom line on MMM stock. With a price-earnings ratio of 23.6 and the financial condition of 3M, MMM stock price of $207 seems to be justifiable.
“Given the slow but steady growth rate of the company, a slightly higher stock price can be expected throughout the next year, maybe around $220 per share,” Unger says. “The business model is very broad, so 3M should be very well diversified in their product lines against any kind of unexpected political or economic shocks.”
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Pros and Cons to Buying 3M Co (MMM) Stock originally appeared on usnews.com
