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3M (MMM) Rises 13.4% in 3 Months: How Should You Play the Stock?
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3M Company’s (MMM - Free Report) investors have been witnessing some short-term gains from the stock of late. The conglomerate giant’s shares have gained 13.4% in the past three months, outpacing the industry’s return of 9.2% and the S&P 500’s 11.4% growth. The company has also outperformed other industry players like Danaher Corporation (DHR - Free Report) and ITT Inc. (ITT - Free Report) , which have returned 4.5% and 10.6%, respectively, over the same time frame.
MMM Three Months Price Performance
Image Source: Zacks Investment Research
Closing at $104.64 in the last trading session, the stock is trading below its 52-week high of $113.14 but much higher than its 52-week low of $85.35. Also, the stock is trading above both its 50-day and 200-day moving averages, indicating solid upward momentum and price stability. This technical strength reflects positive market sentiment and confidence in MMM's financial health and prospects.
Image Source: Zacks Investment Research
Factors Favoring the Company
3M started the year on a strong note with an impressive financial result for the first quarter of 2024. The company’s adjusted net sales came in at $7.72 billion, increasing 0.5% year over year, driven by organic sales growth of 0.8%. It has been witnessing solid momentum in its Transportation and Electronics segment, buoyed by strength in electronics, automotive & aerospace, commercial branding and transportation end markets. Continued channel inventory normalization supported by the stabilization of electronics demand is proving beneficial for the segment.
Strong momentum in the automotive electrification market supported by an increase in automotive OEM (original equipment manufacturer) build rates are also expected to auger well for the segment in the quarters ahead. Backed by strength across its businesses, the company provided a stable outlook. For 2024, the company estimates the Transportation and Electronics segment’s organic sales growth to be up in the low single digits. For the year, 3M expects total adjusted organic sales to grow in the range of 0-2% year over year.
3M has also been undertaking structural reorganization actions to streamline geographic footprint, simplify supply chain, align business go-to-market models to customers and optimize manufacturing roles to align with production volumes. The company expects these restructuring actions to reduce operational costs and improve margins and cash flow in the long term. The restructuring actions are expected to be completed by the end of 2024, with the full impact of benefits starting in 2025. These actions are likely to yield pre-tax savings of $700-$900 million by 2025.
The company also remains committed to rewarding its shareholders handsomely through dividend payouts and share buybacks. For instance, in 2023, it rewarded its shareholders with $3.31 billion in dividends and $33 million in buybacks. Also, in the first quarter of 2024, it paid dividends worth $835 million and repurchased shares worth $21 million. In February 2024, 3M hiked its quarterly dividend by 1%. In 2024, 3M expects its dividend payout ratio to be approximately 40% of adjusted free cash flow.
Better-Than-Industry Returns
MMM’s trailing 12-month return on equity (“ROE”) is indicative of its growth potential. ROE for the trailing 12 months is 95.80%, much higher than the industry’s 29.30%, reflecting the company’s efficient usage of shareholders’ funds.
Image Source: Zacks Investment Research
Stock Valuation
With a forward 12-month price-to-earnings of 13.92X, which is below the industry average of 15.09X, the stock presents a potentially attractive valuation for investors. Also, the stock is cheap compared with its peer, Honeywell International Inc. (HON - Free Report) , which is overvalued compared with the industry.
Image Source: Zacks Investment Research
What Ails the Stock?
Despite the positives, 3M has been coping with softness in the Safety and Industrial segment. Tepid demand in businesses such as personal safety, industrial specialties, electrical markets, abrasives and automotive aftermarket have been affecting the segment’s performance. The segment’s sales declined 1.7% in the first quarter of 2024, following a 2.7% decline in the preceding quarter.
Weakness in the consumer retail end markets owing to soft consumer discretionary spending also remains a concern. This is reflected in the Consumer segment’s results, which declined 4.3% in the first quarter. There has been a particular weakness in packaging, home and auto care, home improvement and consumer safety businesses.
The high debt level also remains concerning for 3M. Exiting the first quarter, the company’s long-term debt was high at $20.6 billion. Its debt increased significantly as a result of Solventum's (3M’s spun-off healthcare business) issuance of $8.4 billion in aggregate principal amount of debt. Exiting the first quarter, its short-term borrowings and current portion of long-term debt totaled $820 million.
Estimate Revision Trend
Amid these, the company’s earnings estimates for 2024 have increased 1.2% to $7.17 over the past 60 days, while the same for 2025 has declined 0.4% to $7.80.
Image Source: Zacks Investment Research
Final Thoughts
Given the promising long-term prospects and strong return on equity, maintaining a position in 3M, which currently carries a Zacks Rank #3 (Hold), appears prudent at present. This stance reflects confidence in MMM's growth trajectory and its potential to deliver sustained value to investors over time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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3M (MMM) Rises 13.4% in 3 Months: How Should You Play the Stock?
3M Company’s (MMM - Free Report) investors have been witnessing some short-term gains from the stock of late. The conglomerate giant’s shares have gained 13.4% in the past three months, outpacing the industry’s return of 9.2% and the S&P 500’s 11.4% growth. The company has also outperformed other industry players like Danaher Corporation (DHR - Free Report) and ITT Inc. (ITT - Free Report) , which have returned 4.5% and 10.6%, respectively, over the same time frame.
MMM Three Months Price Performance
Image Source: Zacks Investment Research
Closing at $104.64 in the last trading session, the stock is trading below its 52-week high of $113.14 but much higher than its 52-week low of $85.35. Also, the stock is trading above both its 50-day and 200-day moving averages, indicating solid upward momentum and price stability. This technical strength reflects positive market sentiment and confidence in MMM's financial health and prospects.
Image Source: Zacks Investment Research
Factors Favoring the Company
3M started the year on a strong note with an impressive financial result for the first quarter of 2024. The company’s adjusted net sales came in at $7.72 billion, increasing 0.5% year over year, driven by organic sales growth of 0.8%. It has been witnessing solid momentum in its Transportation and Electronics segment, buoyed by strength in electronics, automotive & aerospace, commercial branding and transportation end markets. Continued channel inventory normalization supported by the stabilization of electronics demand is proving beneficial for the segment.
Strong momentum in the automotive electrification market supported by an increase in automotive OEM (original equipment manufacturer) build rates are also expected to auger well for the segment in the quarters ahead. Backed by strength across its businesses, the company provided a stable outlook. For 2024, the company estimates the Transportation and Electronics segment’s organic sales growth to be up in the low single digits. For the year, 3M expects total adjusted organic sales to grow in the range of 0-2% year over year.
3M has also been undertaking structural reorganization actions to streamline geographic footprint, simplify supply chain, align business go-to-market models to customers and optimize manufacturing roles to align with production volumes. The company expects these restructuring actions to reduce operational costs and improve margins and cash flow in the long term. The restructuring actions are expected to be completed by the end of 2024, with the full impact of benefits starting in 2025. These actions are likely to yield pre-tax savings of $700-$900 million by 2025.
The company also remains committed to rewarding its shareholders handsomely through dividend payouts and share buybacks. For instance, in 2023, it rewarded its shareholders with $3.31 billion in dividends and $33 million in buybacks. Also, in the first quarter of 2024, it paid dividends worth $835 million and repurchased shares worth $21 million. In February 2024, 3M hiked its quarterly dividend by 1%. In 2024, 3M expects its dividend payout ratio to be approximately 40% of adjusted free cash flow.
Better-Than-Industry Returns
MMM’s trailing 12-month return on equity (“ROE”) is indicative of its growth potential. ROE for the trailing 12 months is 95.80%, much higher than the industry’s 29.30%, reflecting the company’s efficient usage of shareholders’ funds.
Image Source: Zacks Investment Research
Stock Valuation
With a forward 12-month price-to-earnings of 13.92X, which is below the industry average of 15.09X, the stock presents a potentially attractive valuation for investors. Also, the stock is cheap compared with its peer, Honeywell International Inc. (HON - Free Report) , which is overvalued compared with the industry.
Image Source: Zacks Investment Research
What Ails the Stock?
Despite the positives, 3M has been coping with softness in the Safety and Industrial segment. Tepid demand in businesses such as personal safety, industrial specialties, electrical markets, abrasives and automotive aftermarket have been affecting the segment’s performance. The segment’s sales declined 1.7% in the first quarter of 2024, following a 2.7% decline in the preceding quarter.
Weakness in the consumer retail end markets owing to soft consumer discretionary spending also remains a concern. This is reflected in the Consumer segment’s results, which declined 4.3% in the first quarter. There has been a particular weakness in packaging, home and auto care, home improvement and consumer safety businesses.
The high debt level also remains concerning for 3M. Exiting the first quarter, the company’s long-term debt was high at $20.6 billion. Its debt increased significantly as a result of Solventum's (3M’s spun-off healthcare business) issuance of $8.4 billion in aggregate principal amount of debt. Exiting the first quarter, its short-term borrowings and current portion of long-term debt totaled $820 million.
Estimate Revision Trend
Amid these, the company’s earnings estimates for 2024 have increased 1.2% to $7.17 over the past 60 days, while the same for 2025 has declined 0.4% to $7.80.
Image Source: Zacks Investment Research
Final Thoughts
Given the promising long-term prospects and strong return on equity, maintaining a position in 3M, which currently carries a Zacks Rank #3 (Hold), appears prudent at present. This stance reflects confidence in MMM's growth trajectory and its potential to deliver sustained value to investors over time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.