Source: PaxForex Premium Analytics Portal, Fundamental Insight
3M, a diversified technology company that operates in a cyclical industry, recently reported its first-quarter results. The company's revenue for the quarter was a bit over $8.8 billion, a decline of around 9% compared to the previous year. Similarly, 3M's adjusted earnings per share (EPS) also dropped by a significant 25% year-over-year.
While 3M's quarterly results may seem disappointing, it's important to keep in mind that the company is facing headwinds from inflation and operates in a cyclical industry. Other companies are also struggling with similar challenges.
Despite the difficult operating environment, 3M managed to exceed the Wall Street consensus on the top and bottom lines. This suggests that the company is navigating the current pressures better than expected. However, given that 3M is expecting sales to drop between 2% and 6% for the full year, with organic sales off as much as 3%, the first quarter results are mixed.
As a response to the challenging conditions, 3M announced a round of layoffs along with its earnings, indicating that the company is looking to cut costs to combat rising expenses. In terms of earnings per share, 3M is projecting a further decline to between $8.50 and $9, compared to $10.10 in 2022. Notably, the company earned $10.73 in 2021, suggesting that this year's decline is part of a longer trend that has been affecting the stock price for a few years now.
Despite these challenges, 3M has a long history of success, as evidenced by its status as a Dividend King with over 50 years of annual dividend increases. The company has also maintained a strong focus on innovation, which could help drive its top and bottom lines in the right direction eventually.
However, investors need to be aware of a deeper issue that affects 3M's earnings. The company's GAAP earnings are roughly $0.21 per share lower than its adjusted earnings. The majority of these one-time costs are related to legal and regulatory expenses tied to product liability lawsuits and environmental contamination issues. These issues are likely to persist for some time, making the business outlook more uncertain.
In conclusion, 3M's first quarter results are mixed, and the company is facing significant challenges due to inflation and the cyclical nature of its industry. While 3M's history of success and focus on innovation is encouraging, investors should be cautious and aware of the legal and regulatory issues that could impact the company's earnings in the long run. Aggressive investors may find the investment story compelling, but even then, they should consider the risks involved.
As long as the price is below 107.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 105.69
- Take Profit 1: 102.50
- Take Profit 2: 100.00
Alternative scenario:
If the 107.00 level is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 107.00
- Take Profit 1: 110.00
- Take Profit 2: 112.00
