3M's (MMM) Solid Product Portfolio to Aid Amid Pandemic
We have issued an updated research report on 3M Company MMM on Jun 3.
The company presently has a market capitalization of $89.5 billion and a Zacks Rank 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
There are a number of factors that are influencing 3M’s near-term prospects. A brief discussion on important factors is discussed below:
Factors Favoring 3M
Inorganic Activities: The company has been investing in acquisitions over time. It acquired the technology business of M*Modal in February 2019, while added Acelity Inc. and its KCI subsidiaries to its portfolio in October 2019.
In addition to buyouts, 3M also carried out a few divestments to restructure its portfolio. In August 2019, the company divested its gas and flame detection business, while sold-off its advanced ballistic-protection business in January 2020. Also, the divestment of the drug-delivery business was completed in May 2020.
It is worth noting here that acquired assets/divestments positively impacted the company’s sales by 4.2% in first-quarter 2020.
Shareholder-Friendly Policies: 3M is committed toward rewarding shareholders handsomely. It distributed dividends of $847 million in the first quarter of 2020, while bought back $365 million worth shares.
It is worth mentioning here that the company announced a hike of 2% in its quarterly dividend rate to $1.47 in February 2020. In the wake of the coronavirus outbreak, it has temporarily halted its share-buyback activities, while continues with its dividend payouts.
Multiple Tailwinds: In the wake of the coronavirus outbreak, 3M initiated certain cost-saving measures that are likely to yield $350-$400 million savings in second-quarter 2020. Also, it noted that the satisfaction of customers, the safety of its workers and the generation of cash are its priorities.
In addition, the pandemic has boosted demand for products related to general cleaning, food safety, personal safety, home improvement and others. The company believes that huge demand for respirators will aid organic sales by 150 basis points in the second quarter.
Factors Working Against 3M
Share Price Performance and Pandemic Woes: Market sentiments have been against the company for quite some time now. Its stock price has decreased 10.7% since the beginning of 2020 compared with the industry’s decline of 15.1%.
The company is wary about the adverse impacts of the pandemic on its operations. It expects results to be the weakest in the second quarter of this year. Among end-markets, the demand will be lower for discretionary healthcare, oral care, office supplies, general industrial, automotive OEM/ aftermarket and commercial solutions. Notably, 3M’s sales in April declined 11% year over year, with a 12% fall recorded for organic sales. Geographically, results were weak in the Asia Pacific, the Americas, and Europe, Middle East and Africa.
3M’s earnings estimates have been lowered in the past 60 days. The Zacks Consensus Estimate is pegged at $1.71 for the second quarter, reflecting a decline of 13.6% from the 60-day-ago period. Likewise, estimates of $7.92 for 2020 and $8.74 for 2021 reflect a fall of 6.2% and 5.6% from the respective 60-day-ago figure.
3M Company Price and Consensus
3M Company price-consensus-chart | 3M Company Quote
Leverage: High debts and related financial obligations can be concerning for 3M. At the end of first-quarter 2020, the company’s long-term debts were $19.2 billion, reflecting an increase of 10% from the fourth quarter of 2019. Also, the metric increased 14.9% (CAGR) in the last five years (2015-2019).
Notably, the company recorded a 34.5% year-over-year increase in interest expenses in the first quarter of 2020. Compared with the industry’s 56.4%, its long-term debt-to-capital was higher at 66%.
Woes Related to International Presence & Peers: 3M carries out its manufacturing activities from facilities across the globe. Also, it has a solid customer base in Latin America/Canada; the Asia Pacific, the United States; and Europe, Middle East and Africa regions. The international diversification has exposed 3M to macroeconomic challenges, unfavorable movements in foreign currencies, local competitive pressure and geopolitical issues.
Forex woes adversely impacted the company’s first-quarter sales by 1.8% and earnings per share by 8 cents.
Three companies from the industry that competes with 3M are Carlisle Companies Incorporated CSL, Honeywell International Inc. HON and Danaher Corporation DHR.
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Honeywell International Inc. (HON) : Free Stock Analysis Report
3M Company (MMM) : Free Stock Analysis Report
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Carlisle Companies Incorporated (CSL) : Free Stock Analysis Report
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