Since early 2018, 3M (NYSE:MMM) stock has been in a grueling downtrend. The shares have gone from nearly $260 to its current levels just under $147. Of course, with the meltdown in the markets, things have gotten even worse. However, for perspective, MMM stock is now at a price not seen since early 2016.
So, what now? Is MMM stock finally at a bottom? Or should investors still hold off?
Well, despite all the bad news and awful sentiment, the fact remains that the company has a diversified platform that spans four core market segments: safety and industrial, transportation and electronics, healthcare and consumer products. Just some of the brands include Scotch, Post-It, ACE bandages, Thinsulate Insulation and Nexcare.
Moreover, it’s also important to keep in mind that 3M has a long history of innovation and research. And because of this, the company often can charge premium prices for its products — which bolsters margins.
What About The Coronavirus From China?
One catalyst for MMM stock is the impact from the coronavirus from China. Recently, Vice President Mike Pence visited the company in order to greatly boost production of respiratory masks. And while it is not clear how many MMM will sell, it is likely to be tens of millions of units.
However, this may ultimately not move the needle for the company. After all, MMM generates over $32 billion on an annual basis.
If anything, the coronavirus will probably be a net negative for the company. Note that China represents the second largest market in terms of revenues.
In the latest earnings call on Jan. 28th, CEO Michael Roman addressed this by saying:
“And China in particular, before we got to the last couple of weeks with the Coronavirus really becoming the focus, we were looking at a sluggish start to China in first quarter really based on automotive and the build rates expected to be down mid-single digits, and maybe even high single-digits. And so it’s — that was kind of our pacing. Now Coronavirus, it’s kind of changing things as we go..”
No doubt, much has happened since then. China has been slow to recover and the coronavirus is likely to weigh on growth across the world, which could put further pressure on sales for 3M.
Bottom Line On MMM Stock
3M has initiated a restructuring, which will involve the reduction of about 1,500 employees across the organization. Additionally, there is a move to better streamline the numerous divisions. And yes, such actions do seem appropriate, given the slow-growth profile. During the past year, there were year-over-year drops for the Safety & Industrial and Transportation Electronics segments while there were less than 2% increases for Health Care and Consumer businesses.
Also, in terms of the underlying financials, they are definitely solid. For example, 3M has paid dividends without interruption for over the past 100 years. In fact, during the past 62 years, there have been increases.
The yield is also fairly attractive, given the drop in the share price, and is currently about 3.8%. By comparison, General Electric (NYSE:GE) and Danaher (NYSE:DHR) both yield less than 1%.
And finally, the valuation on MMM stock is at reasonable levels — including a forward price-earnings (P/E) ratio is about 16 times. But then again, in light of the muted top line and the uncertainties with the economic environment, this still does not look cheap enough.
In other words, it is probably a good idea to wait on MMM stock.
Tom Taulli is an Enrolled Agent and also operates PathwayTax.com, which is a tax advisory and preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
