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3M Stock Trades Near 52-Week High: How Should Investors Play?
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Shares of 3M Company (MMM - Free Report) are showing impressive gains of late, trading close to its 52-week high of $135.28. The stock closed at $134.61 (on Monday), just 0.5% below the highest point. In the past three months, the conglomerate giant’s shares have surged 33.5%, outpacing the Zacks Diversified Operations industry’s decline of 8.2% and the S&P 500’s growth of 2.2%. The company has also outperformed other industry players like Danaher Corporation (DHR - Free Report) and ITT Inc. (ITT - Free Report) , which have returned 7.2% and 3.6%, respectively, over the said time frame.
MMM Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
The stock is also trading above both its 50-day and 200-day moving averages, indicating solid upward momentum and price stability. This reflects a positive market sentiment and confidence in the company's financial health and long-term prospects.
3M Shares Trade Above 50-Day and 200-Day SMA
Image Source: Zacks Investment Research
Factors Favoring the Company
3M has been benefiting from persistent strength in the Transportation and Electronics segment, driven by solid momentum in electronics, automotive and aerospace, commercial branding and transportation end markets. Continued channel inventory normalization, supported by strong growth in electronics demand, is aiding the segment’s performance.
Solid demand environment in the automotive electrification market and growth in auto OEM (original equipment manufacturer) build rates are expected to augur well for the Transportation and Electronics segment in the quarters ahead. Organic revenues grew 3.3% year over year in the second quarter of 2024.
The company’s Safety and Industrial segment has also been benefiting from a recovery in demand across most of the end markets. This improvement is primarily pronounced in businesses like industrial adhesives & tapes, personal safety and automotive aftermarket. The segment’s organic revenues improved 1.1% year over year in the second quarter of 2024, following declines in the previous two quarters.
3M has been undertaking structural reorganization actions to reduce operational costs and improve margins and cash flow in the long term. These include streamlining geographic footprint, simplifying supply chain and optimizing manufacturing roles to align with production volumes.
The company expects these actions to be completed by 2025 and yield annual pre-tax savings. In the second quarter of 2024, these restructuring actions, along with strong organic volume, raised 3M’s adjusted operating margin by 440 basis points year over year to 21.6%.
The company also remains committed to increasing shareholders’ value through dividend payouts and share repurchases. For instance, in the first six months of 2024, it paid dividends worth $1.2 billion and repurchased shares for $421 million. Exiting the second quarter, the company had $3.8 billion remaining under the share repurchase program. Also, it hiked its quarterly dividend by 1% in February 2024.
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 112.92%, much higher than the industry’s 31.32%. This reflects the company’s efficient usage of shareholder funds.
Image Source: Zacks Investment Research
Earnings Estimate Revision
Earnings estimates for 3M have moved north over the past 60 days, reflecting analysts’ optimism.
The Zacks Consensus Estimate for 2024 earnings is pegged at $7.22 per share, suggesting year-over-year growth of 0.7%. The consensus mark for 2025 earnings is pinned at $7.84 per share, indicating a year-over-year increase of 0.5%. As earnings estimates increase, the stock is likely to follow suit.
Image Source: Zacks Investment Research
What’s Hurting the Stock?
Despite the positives, the company has been experiencing weakness in the consumer retail end markets, owing to a decrease in consumer discretionary spending. This is reflected in the Consumer segment’s revenues, which declined 2.4% in the second quarter.
There was a particular weakness in packaging and expression as well as home and auto care businesses. 3M expects consumer retail discretionary spending on hardline goods to remain muted for the rest of the year, which is likely to hurt its overall performance.
High debt levels have also been concerning. 3M exited the second quarter with a long-term debt of $11.8 billion, while its short-term borrowings and current portion of long-term debt totaled $1.3 billion.
Also, interest expenses in the second quarter remained high at $322 million, reflecting an increase of 123.6% on a year-over-year basis. It’s worth noting that 3M’s long-term debt-to-capital ratio is 74.7%, much higher than the industry’s 26.6%.
Stock Valuation
MMM’s lofty valuation remains a concern. The stock trades at a forward 12-month price-to-earnings (P/E) ratio of 17.57X, higher than the S&P 500’s average of 15.02X. This elevated valuation could make the stock vulnerable to further pullbacks if market sentiment sours. However, the stock is cheap compared with its peer, Honeywell International Inc. (HON - Free Report) , which is trading at 18.83X.
Image Source: Zacks Investment Research
Our Final Take
Given the promising long-term prospects and solid return on equity, maintaining a position in 3M appears prudent at present. This stance reflects confidence in MMM's growth trajectory and its potential to deliver sustained value to investors over time. 3M carries a Zacks Rank #3 (Hold) at present.
Image: Bigstock
3M Stock Trades Near 52-Week High: How Should Investors Play?
Shares of 3M Company (MMM - Free Report) are showing impressive gains of late, trading close to its 52-week high of $135.28. The stock closed at $134.61 (on Monday), just 0.5% below the highest point. In the past three months, the conglomerate giant’s shares have surged 33.5%, outpacing the Zacks Diversified Operations industry’s decline of 8.2% and the S&P 500’s growth of 2.2%. The company has also outperformed other industry players like Danaher Corporation (DHR - Free Report) and ITT Inc. (ITT - Free Report) , which have returned 7.2% and 3.6%, respectively, over the said time frame.
MMM Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
The stock is also trading above both its 50-day and 200-day moving averages, indicating solid upward momentum and price stability. This reflects a positive market sentiment and confidence in the company's financial health and long-term prospects.
3M Shares Trade Above 50-Day and 200-Day SMA
Image Source: Zacks Investment Research
Factors Favoring the Company
3M has been benefiting from persistent strength in the Transportation and Electronics segment, driven by solid momentum in electronics, automotive and aerospace, commercial branding and transportation end markets. Continued channel inventory normalization, supported by strong growth in electronics demand, is aiding the segment’s performance.
Solid demand environment in the automotive electrification market and growth in auto OEM (original equipment manufacturer) build rates are expected to augur well for the Transportation and Electronics segment in the quarters ahead. Organic revenues grew 3.3% year over year in the second quarter of 2024.
The company’s Safety and Industrial segment has also been benefiting from a recovery in demand across most of the end markets. This improvement is primarily pronounced in businesses like industrial adhesives & tapes, personal safety and automotive aftermarket. The segment’s organic revenues improved 1.1% year over year in the second quarter of 2024, following declines in the previous two quarters.
3M has been undertaking structural reorganization actions to reduce operational costs and improve margins and cash flow in the long term. These include streamlining geographic footprint, simplifying supply chain and optimizing manufacturing roles to align with production volumes.
The company expects these actions to be completed by 2025 and yield annual pre-tax savings. In the second quarter of 2024, these restructuring actions, along with strong organic volume, raised 3M’s adjusted operating margin by 440 basis points year over year to 21.6%.
The company also remains committed to increasing shareholders’ value through dividend payouts and share repurchases. For instance, in the first six months of 2024, it paid dividends worth $1.2 billion and repurchased shares for $421 million. Exiting the second quarter, the company had $3.8 billion remaining under the share repurchase program. Also, it hiked its quarterly dividend by 1% in February 2024.
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 112.92%, much higher than the industry’s 31.32%. This reflects the company’s efficient usage of shareholder funds.
Image Source: Zacks Investment Research
Earnings Estimate Revision
Earnings estimates for 3M have moved north over the past 60 days, reflecting analysts’ optimism.
The Zacks Consensus Estimate for 2024 earnings is pegged at $7.22 per share, suggesting year-over-year growth of 0.7%. The consensus mark for 2025 earnings is pinned at $7.84 per share, indicating a year-over-year increase of 0.5%. As earnings estimates increase, the stock is likely to follow suit.
Image Source: Zacks Investment Research
What’s Hurting the Stock?
Despite the positives, the company has been experiencing weakness in the consumer retail end markets, owing to a decrease in consumer discretionary spending. This is reflected in the Consumer segment’s revenues, which declined 2.4% in the second quarter.
There was a particular weakness in packaging and expression as well as home and auto care businesses. 3M expects consumer retail discretionary spending on hardline goods to remain muted for the rest of the year, which is likely to hurt its overall performance.
High debt levels have also been concerning. 3M exited the second quarter with a long-term debt of $11.8 billion, while its short-term borrowings and current portion of long-term debt totaled $1.3 billion.
Also, interest expenses in the second quarter remained high at $322 million, reflecting an increase of 123.6% on a year-over-year basis. It’s worth noting that 3M’s long-term debt-to-capital ratio is 74.7%, much higher than the industry’s 26.6%.
Stock Valuation
MMM’s lofty valuation remains a concern. The stock trades at a forward 12-month price-to-earnings (P/E) ratio of 17.57X, higher than the S&P 500’s average of 15.02X. This elevated valuation could make the stock vulnerable to further pullbacks if market sentiment sours. However, the stock is cheap compared with its peer, Honeywell International Inc. (HON - Free Report) , which is trading at 18.83X.
Image Source: Zacks Investment Research
Our Final Take
Given the promising long-term prospects and solid return on equity, maintaining a position in 3M appears prudent at present. This stance reflects confidence in MMM's growth trajectory and its potential to deliver sustained value to investors over time. 3M carries a Zacks Rank #3 (Hold) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.