Welcome to the Stock of the Day!
Christmas has come early for shareholders of 3M (MMM). Today the global conglomerate announced a multi-billion-dollar stock buyback program and a sizeable boost to its quarterly dividend. But does this alone make MMM a good buying opportunity? Let’s find out.
3M Co. is a multinational conglomerate with a staggeringly large portfolio of more than 55,000 products—covering everything from adhesives to dental products to traffic signals to car care products. The conglomerate’s roots stem back to 1902; it began as a stone mining operation but quickly expanded into making innovative products. Diversified across eight businesses, 3M brings in just under $30 billion in sales every year.
3M Co.’s biggest competitors are Avery Dennison (AVY), DuPont (DD) and Johnson & Johnson (JNJ). Of these four companies, 3M Co. has the second-highest sales growth, gross margin as well as operating margin. With operations in 60 countries, 3M Co. employs over 87,000 worldwide.
There are 243 companies in the Conglomerates Industry. Of those, 3M Co. is fourth largest in terms of market cap. Most notably, 3M’s 2.0% dividend yield is the third largest in the industry, and the company’s 25.3% return on equity is sixth highest in the industry.
In addition, the company boasts the fifth highest Price/Earnings to Growth ratio, which is a ratio that determines a stock’s value while also considering earnings growth, as well as the eighth highest long-term growth rate. Finally, the company’s sales and earnings growth falls in the top quartile in the industry. So, within the Conglomerates Industry, 3M is a comparatively strong player.
3M had several exciting announcements for shareholders today.
First, it announced that it is buying back up to $22 billion of its shares in the next five years. Stock buybacks are a good way to boost earnings and are often a plus for shareholders. Then, 3M hiked up its quarterly dividend by a third to 88.5 cents per share. Finally, the company released its FY 2014 sales and earnings guidance. The company expects EPS in a range of $7.30 to $7.55, in line with the $7.41 consensus estimate. 3M also forecast between 3% and 6% organic sales growth, excluding the impact of foreign exchange rates.
All-in-all, these announcements were seen as positives on Wall Street so MMM shares are ahead on the day.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. While MMM spent most of 2012 in hold territory, 2013 has been a much better year for the conservatively-ranked stock. Most notably, institutional buying pressure has firmed up to the point where MMM receives an A-rating for its Quantitative Grade.
On the fundamentals side, there’s still room for improvement—the company receives Cs on six of the financial metrics I graded it on (including sales growth, operating margin growth and earnings growth).
Meanwhile, MMM rates well on cash flow (B) and return on equity (A), so it receives a B for its Fundamental Grade.
Bottom Line: As of this posting, MMM is a B-rated Buy.