Source: PaxForex Premium Analytics Portal, Fundamental Insight
3M has quietly become one of the most significant turnaround stories in the market, with its stock surging nearly 40% this year, reaching its highest point since early 2022.
After navigating a challenging post-pandemic period marked by supply-chain issues and inflationary cost pressures, the industrial giant has shown signs of recovery with its latest update showcasing a rebound in growth and expanding profit margins.
The headlines are encouraging, but does that mean 3M stock is a buy right now? Let’s take a closer look at the data to find out.
The core of 3M's resurgence lies in its solid financial and operational performance. The company posted second-quarter adjusted earnings per share (EPS) of $1.93, surpassing Wall Street expectations and up 39% from last year's $1.39. Organic adjusted sales reached $6 billion, reflecting a 1.2% year-over-year increase.
While management continues to highlight challenges in consumer spending, industrial markets have remained stable. The transportation and electronics division, in particular, has been a bright spot, driven by demand in the semiconductor industry and the introduction of new products for electric vehicles.
An internal restructuring initiative, focused on cost savings and efficiency improvements, seems to be delivering results. The adjusted operating margin for the quarter improved to 21.6%, up by 440 basis points from 17.2% a year ago.
Thanks to this strong performance, management has raised its full-year earnings forecast. 3M is now projecting 2024 EPS between $7 and $7.30, compared to the previous midpoint estimate of $7.05 and $6.04 in adjusted EPS from continuing operations in 2023.
The recent rally in 3M, a global leader known for iconic brands like Scotch Tape and Bondo, appears to have lasting momentum, which is promising news for investors.
What makes 3M appealing as a high-quality investment is its diversified portfolio, spanning advanced materials, personal protective equipment, office supplies, and home care products. This broad range helps the company stand out as a stable investment opportunity.
While the outlook for organic revenue growth this year is expected to be in the low-single-digit range, it’s noteworthy in the context of persistent macroeconomic volatility. This demonstrates 3M’s resilience and its ability to successfully navigate a fluctuating business environment.
The bullish case for 3M is centered on its potential to emerge even stronger as demand recovers in consumer markets and traditionally high-growth regions like China, which have been slower recently. The company’s strategy of continuous innovation, offering more value-added products, optimizing pricing, and maintaining a strong balance sheet provides a positive long-term outlook.
From a valuation perspective, 3M shares are currently trading at a forward price-to-earnings (P/E) ratio of 17. This is particularly attractive when compared to industrial sector peers such as Honeywell International, DuPont de Nemours, and Dow, which trade at higher earnings multiples closer to 20.
Even after the recent rally, 3M still appears undervalued given its improved financial position. Furthermore, the stock offers a quarterly dividend of $0.70, providing a forward yield of 2.2%, which adds to its investment appeal.
Given the company’s strong start to the year and the potential for continued success, 3M stock is seen as a buy. Key metrics to watch over the next few quarters include organic sales growth, cash flow, and margin performance.
As long as macroeconomic conditions remain favorable, 3M is expected to expand and solidify its market share. For long-term investors, a small position in 3M could be a valuable addition to a diversified portfolio.
While the price is above 119.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 126.96
- Take Profit 1: 133.00
- Take Profit 2: 138.00
Alternative scenario:
If level 119.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 119.00
- Take Profit 1: 113.00
- Take Profit 2: 106.00
