Of the current Dow 30 companies, 3M (NYSE:MMM) has got to be one of the most disappointing. Although MMM stock isn’t the worst performer on a year-to-date basis — that dubious honor goes to Walgreens Boots Alliance (NASDAQ:WBA) — the Post-It Notes-maker has nonetheless frustrated stock investors to no end. The company’s recent second quarter 2019 earnings report provides yet another example why.
On paper, the the company posted better-than-expected numbers. Against a per-share profitability target of $2.04, 3M delivered earnings per share of $2.20. On the revenue front, the company rang up $8.2 billion in sales. That haul was notably ahead of the consensus forecast, which called for $8.02 billion.
And yet, the MMM stock price took a tumble on the report. Although the market-value drop wasn’t as severe as when the industrial firm disclosed Q1 results, it was still conspicuously bad. Even more problematic, 3M stock really didn’t benefit from a sympathy rally.
So why did shares decline after a strong print? As InvestorPlace contributor James Brumley noted prior to Q2, analysts had lowered their expectations, especially after the Q1 disaster. Therefore, most folks expected a beat from 3M.
Plus, key metrics were down against the year-ago quarter results. For instance, EPS was down 28.3%, while top-line sales slipped 2.6%. Under that context, perhaps shareholders should be grateful the fallout in the MMM stock price wasn’t more pronounced.
And Brumley brought up a great point: consumer loyalty doesn’t really exist anymore today. With e-commerce, people can buy whatever products they want, often at a great price.
Product-wise, there’s no compelling reason to buy 3M stock, until now.
New Packaging Product a Game-changer for 3M Stock
In the age of digitalization, the biggest risk for the viability of the MMM stock price is irrelevancy. Simply put, with everything seemingly moving to the cloud, a company that focuses on physical products seems anachronistic.
Ironically, though, digitization has actually pushed greater demand toward the physical realm. Specifically, I’m referring to packaging materials. Even if retail moves completely online, retailers must still ship their products to their customers.
This fact is why I’m so excited about 3M stock, a phrase I thought I’d never utter. The Minnesota-based company will release a new type of packaging material which requires no tape or protective fillers. Called the “Flex & Seal Shipping Roll,” this innovation has the potential to upturn all retail in a good way.
Essentially, Flex & Seal is a form-fitting mechanism. Put your desired product on the roll, cut out the required space, fold the “empty” side of the roll atop the product, and you’re good to go.
The conglomerate provides a video demonstration of Flex & Seal, which I recommend you watch. When you do, you’ll quickly see why the bulls can finally justify optimism toward MMM stock.
For one thing, Flex & Seal is perfect for the on-demand economy. More importantly, 3M can market this product to everyone, from Amazon (NASDAQ:AMZN) to Target (NYSE:TGT) to small retail businesses. Not only can customers save a boatload of money using 3M’s innovation, the company may have also built a moat. That’s because individual retailers won’t benefit from economies of scale if they build their own solutions in-house and for their internal use.
It also answers a key criticism that bears have brought up: 3M finally brought to the table a must-have product.
MMM Stock Back on Track
One other point about Flex & Seal I’d like to emphasize is its universal appeal. Sometimes, I find myself searching for the perfect-sized cardboard box to mail things. Often, I have to compromise, filling dead space with gobs of protective material.
With Flex & Seal, the package conforms to the product, not the other way around. This is such a profound, groundbreaking innovation. Yet is it enough to justify a risk in 3M stock?
Of course, I understand investor hesitation. Since January 2018, 3M stock has traded inside an ugly bearish trend channel. The risk here is that you’re about to hold the bag.
That said, I think investors can find some technical encouragement to go along with the fundamental optimism. After a contextually ho-hum earnings report, the MMM stock price has held up reasonably well. Now, investors just need a good reason to push things forward. I genuinely believe Flex & Seal is the catalyst stakeholders have been searching for.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
