Along with much of the rest of the market, 3M (NYSE:MMM) stock rebounded nicely since hitting a bottom on March 23. The shares have gained about 25% to $147 a share, putting the market capitalization at $84.5 billion.
Yet MMM stock is still off about 16% for the year. Something else to keep in mind is that the long-term performance has been subpar as well. For the past 15 years, the average rate of return was only 6.37%.
So what should investors do then?
Well, on Tuesday we’ll get a better sense of things as the company will report its first quarter results. The Street consensus estimate for earnings is $2.03 per share, down from $2.23 in the same period a year ago. As for revenues, the forecast is for $7.91 billion, down from $8.02 billion.
But of course, in light of the novel coronavirus, it’s extremely difficult to come up with any meaningful projections. The old models really do not make a lot of sense.
However, even before the pandemic hit, 3M was slipping. Just look at the fourth quarter results. The earnings came in at $1.66 per share, which was well below the estimate of $2.13 per share. The sales also dropped by 2.6% to $8.1 billion, with weakness in China, autos and electronics.
As a result, 3M announced layoffs of 1,500 jobs (last year there was a reduction of 2,000 positions) and the implementation of a new global operating model.
Here’s what 3M CEO Michael Roman had to say about it on the earnings call: “Now, all of our international people report directly into the business groups and functions that they are part of, and there is no longer a separate international team. This new model has clear benefits to both 3M and our customers.”
A Busy Quarter
In late March, 3M announced its strategy for dealing with the pandemic. A key part of this was to focus on greatly increasing the production of N95 respirator masks. The goal is to get the levels at an annual rate of two billion, with the priority given to healthcare and public health organizations in the U.S. The company has also partnered with Ford (NYSE:F) for the production of PAPRs (powered air purifying respirators). In the meantime, the company has been taking aggressive efforts to take legal actions against counterfeiters and price gougers.
Yes, 3M did become the target of President Donald Trump’s Twitter (NYSE:TWTR) account. The issue was about the exporting of N95 respirator masks to other countries. But it seems that this has become a non-issue as 3M has changed some of its policies.
Bottom Line On MMM Stock
The company will benefit from its multiple revenue streams. No doubt, the healthcare business should continue to do well. Consider that this segment represents about 23.1% of overall revenues. MMM has also been investing much more into the healthcare business. Late last year, the company paid $6.7 billion for Acelity, which focuses on advanced wound dressings and other surgical items. The annual revues were about $1.5 billion.
The dividend is also another big attraction for MMM stock, with the yield at 4%. In fact, the company has increased the payout for 62 consecutive years.
But despite all this, the valuation on MMM stock does not necessarily look like a compelling value play right now because of the recent rally. The Street price target is actually about a buck below the current price. And again, there are other parts of 3M’s business that will likely be under continued pressure. So ahead of the earnings report, it might be best to take a wait-and-see approach when thinking of making a purchase of the shares.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
