3M (NYSE:MMM) has not been trading all that well. Despite the company significantly increasing the production of masks to aid against the coronavirus, MMM stock is down 24% from its 2020 high.
Some investors may look at that as if it’s a good sign, given that it’s slightly better than the S&P 500, which is down 25.5%. However, there are plenty of unknowns at the moment.
For instance, is 3M benefiting or hurting from COVID-19? You hate to even ask about who’s benefiting because this terrible virus has infected over a million people already while sending billions into a panic. But from a financial perspective, investors need to know which companies are hurting and which are not.
3M vs. the Coronavirus
Clearly 3M is doing better than retailers, restaurants and other companies at the moment. But that doesn’t mean it’s doing well overall.
At first glance, 3M’s masks, suits and other products are in clear demand. Management said it already has doubled production of its N95 masks and demand still outstrips supply. Globally, it’s producing almost 100 million masks a month and looks to further increase that figure.
That will likely give a boost to its biggest revenue segment, Safety and Industrial, which makes up 36.1% of 3M’s total revenue. The group includes products for “personal safety, industrial adhesives and tapes, abrasives, closure and masking systems, electrical markets, automotive aftermarket, and roofing granules.”
However, one would also expect its Transportation and Electronics segment, which accounts for roughly 30% of total revenue, to suffer amid the outbreak. That goes for its Consumer segment too, which accounted for 15.8% of revenue in 2019.
Surprisingly, the wild card here is 3M’s Health Care segment, which accounts for roughly 23% of sales. While it seems like a no-brainer during a global pandemic, the group consists of “medical solutions, oral care, separation and purification sciences, health information systems, drug delivery systems, and food safety.”
With the coronavirus outbreak occurring, many non-emergency medical procedures are on the back burner right now.
Valuing 3M Co
It’s hard to call it “good news” with COVID-19 spreading around the world. But there’s little doubt 3M’s largest revenue segment — Safety and Industrial — will be strong this quarter and next. Or at the very least, stable. The company can’t keep up with the demand for masks and demand is surely strong for other personal protective equipment (PPE).
The question becomes, how much will grow in this segment offset the slowdown in other segments?
That’s hard to answer and is something that’s plaguing most other stocks at the moment too. It’s why so many companies have pulled their guidance amid the outbreak.
As it stands now, analysts expect flat revenue growth this quarter and a 1.3% drop next quarter. On the earnings front though, consensus estimates call for a 7.2% decline in earnings this quarter and just a 3.8% decline next quarter.
For the full year, analysts expect earnings of $8.78 per share. If accurate, that would represent just a 3.3% decline for the year (so analysts expect the second half of the year to be better than the first half). The full-year estimate is down about 10% from three months ago.
It leaves 3M trading at roughly 15.5 times this year’s earnings estimates. However, the trouble is deciphering the accuracy of that estimate. Unfortunately, we simply can’t trust it.
The bottom line: Investors could do better, but they could also do much worse than MMM stock. Shares pay a 4.3% dividend yield and trade at a reasonable valuation. While we don’t know the full impact of COVID-19 on 3M, business seems stable. That’s even with President Trump saying the company will have a “big price to pay.”
Chart of MMM Stock
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The business may be stable, but the technicals are not. If you look at this multi-year weekly chart of MMM stock. you’ll see that shares were in trouble long before the coronavirus was here.
Shares held the $118 to $120 level and are now trying to reclaim prior downtrend support (blue line). If it can clear this area, let’s see how 3M handles the $145 to $150 zone. If MMM stock can’t reclaim prior downtrend support, $120 to $123 remains in play.
The fundamentals seem “just okay” at this point, but the charts are rather discouraging.
As for its peers, one could lump Honeywell (NYSE:HON) in with 3M at this point. Business also seems stable and the valuation is similar. However, the yield is lower for HON stock, at just 2.7%. However, I would avoid United Technologies (NYSE:UTX) at this point, as business is set to suffer.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
