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3M Surges 45.6% in Six Months: How Should You Play the Stock?
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3M Company’s (MMM - Free Report) shares have rallied 45.6% over the past six months, outperforming the Zacks Diversified Operations industry and the S&P 500’s growth of 12.1% and 10.6%, respectively. The diversified technology company has also outperformed other industry players like ITT Inc. (ITT - Free Report) and Honeywell International Inc. (HON - Free Report) , which have returned 12.8% and 2.5%, respectively, over the same time frame.
MMM Stock’s Six-Month Price Performance
Image Source: Zacks Investment Research
Closing at $134.85 in the last trading session, the stock is trading below its 52-week high of $140.72 and much higher than its 52-week low of $71.36. Also, it is trading above 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.
3M Shares Trade Above 50-Day and 200-Day SMA
Image Source: Zacks Investment Research
Factors Favoring MMM
3M has been benefiting from improving demand conditions in transportation, aerospace and commercial branding end markets. Continued channel inventory normalization supported by strong growth in electronics demand is driving the performance of the Transportation and Electronics segment.
Solid momentum in the automotive electrification market, with an increase in auto OEM (original equipment manufacturer) build rates, is also expected to augur well for the segment in the quarters ahead. The segment’s adjusted organic revenues grew 3.3% year over year in the second quarter of 2024.
Improvement in demand across end markets also bodes well for 3M’s industrial adhesives & tapes, personal safety and automotive aftermarket businesses under the Safety and Industrial segment. The segment’s organic sales increased 1.1% year over year in the second quarter, following declines in the previous two quarters. However, weakness across the abrasives and industrial specialties markets remains a concern. Backed by strength across its businesses, 3M provided a stable outlook. For 2024, the company expects total adjusted organic sales to grow in the range of 0-2% year over year.
The company has been undertaking restructuring actions that are intended to lower operational costs and boost margins and cash flow in the long term. These include streamlining the geographic footprint, simplifying the supply chain and optimizing manufacturing roles to align with production volumes. Expected to be completed by 2025, these actions are likely to yield annual pre-tax savings. In the second quarter, 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 rewarding its shareholders handsomely through dividend payments and share buybacks. In the first six months of the year, dividend payouts totaled $1.2 billion and $421 million of shares were repurchased. At the end of the second quarter, MMM 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
3M’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
Estimate Revision Trend
The company’s earnings estimates for 2024 have increased 0.6% to $7.24 per share over the past 60 days, while the same for 2025 inched up 0.3% to $7.86. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
Risks to Consider Before Choosing MMM
Despite the aforementioned growth opportunities, 3M faces certain challenges that one should consider before investing in this stock. Weakness in the consumer retail end markets has been affecting the performance of the Consumer segment of late. The segment’s revenues declined 2.4% in the second quarter.
It is witnessing 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.
MMM’s high debt level remains a concern for its profitability. Despite its efforts to reduce debt leverage, the company’s current and long-term debt remained high at $13.1 billion at the end of the second quarter. Also, interest expenses in the 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%.
Stretched Valuation Remains an Overhang for the Stock
In terms of valuation, MMM’s forward 12-month price-to-earnings (P/E) is 17.48X, a premium to its industry average of 16.89X. This indicates that investors will be paying a higher price than the company's expected earnings growth compared with the industry on average. However, the stock is cheap compared with its peer, Danaher Corporation (DHR - Free Report) , which is trading at 31.88X.
Image Source: Zacks Investment Research
Final Thoughts on 3M
Investors interested in 3M stock should wait for a better entry point, considering its premium valuation and the challenges it is facing in the retail market. Also, MMM currently has a VGM Score of C, which is not a very favorable indicator of strong performance.
However, those who already own this Zacks Rank #3 (Hold) company may stay invested as its upbeat estimates, robust share price returns over the past six months and benefits of improving demand across end markets offer solid long-term prospects.
Image: Bigstock
3M Surges 45.6% in Six Months: How Should You Play the Stock?
3M Company’s (MMM - Free Report) shares have rallied 45.6% over the past six months, outperforming the Zacks Diversified Operations industry and the S&P 500’s growth of 12.1% and 10.6%, respectively. The diversified technology company has also outperformed other industry players like ITT Inc. (ITT - Free Report) and Honeywell International Inc. (HON - Free Report) , which have returned 12.8% and 2.5%, respectively, over the same time frame.
MMM Stock’s Six-Month Price Performance
Image Source: Zacks Investment Research
Closing at $134.85 in the last trading session, the stock is trading below its 52-week high of $140.72 and much higher than its 52-week low of $71.36. Also, it is trading above 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.
3M Shares Trade Above 50-Day and 200-Day SMA
Image Source: Zacks Investment Research
Factors Favoring MMM
3M has been benefiting from improving demand conditions in transportation, aerospace and commercial branding end markets. Continued channel inventory normalization supported by strong growth in electronics demand is driving the performance of the Transportation and Electronics segment.
Solid momentum in the automotive electrification market, with an increase in auto OEM (original equipment manufacturer) build rates, is also expected to augur well for the segment in the quarters ahead. The segment’s adjusted organic revenues grew 3.3% year over year in the second quarter of 2024.
Improvement in demand across end markets also bodes well for 3M’s industrial adhesives & tapes, personal safety and automotive aftermarket businesses under the Safety and Industrial segment. The segment’s organic sales increased 1.1% year over year in the second quarter, following declines in the previous two quarters. However, weakness across the abrasives and industrial specialties markets remains a concern. Backed by strength across its businesses, 3M provided a stable outlook. For 2024, the company expects total adjusted organic sales to grow in the range of 0-2% year over year.
The company has been undertaking restructuring actions that are intended to lower operational costs and boost margins and cash flow in the long term. These include streamlining the geographic footprint, simplifying the supply chain and optimizing manufacturing roles to align with production volumes. Expected to be completed by 2025, these actions are likely to yield annual pre-tax savings. In the second quarter, 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 rewarding its shareholders handsomely through dividend payments and share buybacks. In the first six months of the year, dividend payouts totaled $1.2 billion and $421 million of shares were repurchased. At the end of the second quarter, MMM 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
3M’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
Estimate Revision Trend
The company’s earnings estimates for 2024 have increased 0.6% to $7.24 per share over the past 60 days, while the same for 2025 inched up 0.3% to $7.86. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
Risks to Consider Before Choosing MMM
Despite the aforementioned growth opportunities, 3M faces certain challenges that one should consider before investing in this stock. Weakness in the consumer retail end markets has been affecting the performance of the Consumer segment of late. The segment’s revenues declined 2.4% in the second quarter.
It is witnessing 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.
MMM’s high debt level remains a concern for its profitability. Despite its efforts to reduce debt leverage, the company’s current and long-term debt remained high at $13.1 billion at the end of the second quarter. Also, interest expenses in the 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%.
Stretched Valuation Remains an Overhang for the Stock
In terms of valuation, MMM’s forward 12-month price-to-earnings (P/E) is 17.48X, a premium to its industry average of 16.89X. This indicates that investors will be paying a higher price than the company's expected earnings growth compared with the industry on average. However, the stock is cheap compared with its peer, Danaher Corporation (DHR - Free Report) , which is trading at 31.88X.
Image Source: Zacks Investment Research
Final Thoughts on 3M
Investors interested in 3M stock should wait for a better entry point, considering its premium valuation and the challenges it is facing in the retail market. Also, MMM currently has a VGM Score of C, which is not a very favorable indicator of strong performance.
However, those who already own this Zacks Rank #3 (Hold) company may stay invested as its upbeat estimates, robust share price returns over the past six months and benefits of improving demand across end markets offer solid long-term prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.