3M – Sell

3M Company (MMM) manufactures and sells industrial, safety, and consumer products worldwide. It operates through multiple business segments including, Safety & Industrial, Transportation & Electronics, Health Care, and Consumer.

The company offers its products directly to users and through various e-commerce and traditional wholesalers, retailers, jobbers, distributors, and dealers. MMM was founded in 1902 and is based in St. Paul, Minnesota.

I am bullish on MMM stock, with the latest Q4 2021 earnings and full-year 2021 financial results being strong. 3M Company has a balance sheet with moderate financial strength, but profitability is strong, and the stock is near to its 52-week low, giving it an attractive valuation. Dividend Stocks like MMM stock could outperform S&P 500 in 2022, as tighter monetary policy is expected by the Fed.

3M Company Business News

The industrial conglomerate selling many products across several industries worldwide has announced 3M Futures, a new online platform that will explore top global trends in science, technology, and design. There will be commentary by 3M experts and data from a third-party research study across 11 countries such as the USA, India, Japan, Canada, France, and Germany.

The firm has announced that it will be expanding its business operations in Clinton, Tennessee, with an investment of nearly $470 million. 3M plans on adding an additional 600 jobs by 2025.

Back in December 2021, 3M Company announced it would be joining the Global Alliance for Sustainable Energy. “This new coalition advanced its mission of addressing challenges in the renewable industry at the UN Climate Change Conference (COP26) in Glasgow,” stated the press release.

A dividend increase of $0.01 per share was announced on February 8, 2022, raising the quarterly dividend to $1.49, representing the milestone of a dividend hike for the 64th consecutive year.

Q4 2021 Earnings and Full-Year 2021 Results

The latest quarterly earnings for 3M Company were better than expected. MMM stock earnings show both stability and moderate growth as of Q1 2020. EPS GAAP of $2.31 was a beat by $0.29, and revenue of $8.61 billion was a beat by $31.63 million.

The Q4 2021 highlights included a year-over-year revenue increase of 0.3%, an operating cash flow of $2 billion, and a return of $1.8 billion to shareholders in the form of dividends and share repurchases.

The Safety & Industrial segment reported sales of $3.1 billion, down 2.2% in U.S. dollars, and the Transportation & Electronics segment had sales of $2.3 billion, down 1.5%. On the positive side, the Health Care segment reported sales of $2.3 billion, up 0.7%, and the Consumer segment reported sales of $1.5 billion, up 4.1%.

Turning to full-year 2021 financial results, revenue of $35.4 billion was up 9.9% year-on-year, EPS of $10.12 was up 8% year-over-year, and MMM returned $5.6 billion to shareholders via dividends and gross share repurchases.

3M’s Fundamentals

The firm has announced 2022 guidance, expecting total sales growth in the range 1%-4%, organic sales growth of 2%-5%, EPS of $10.15-$10.65, and also expecting robust cash flow.

The biggest reason of concern for 3M Company is its high level of debt. The D/E ratio of 1.11 as per the latest quarter is considered high. The gross margin has been slowly declining since 2016, and the operating margin has declined to 22% from its high of 23.7% in 2018.

Revenue per share and EPS show predictable growth, liquidity does not pose a problem, and net margin increased marginally to 16.75% in 2021 from 16.73% in 2020. Free cash flow declined 11.5% in 2021 to $5.85 billion, but overall, the trend is strong and very positive.

Valuation

MMM stock is relatively undervalued based on its P/E ratio of 14.5x compared to the U.S. industrials industry average of around 25x. However, it is relatively overvalued based on its PEG ratio of 2x and based on its P/B ratio of 5.6x industry average of about 3.1x.

Wall Street’s Take

3M Company has a Moderate Sell consensus based on one Buy, seven Holds, and five Sell ratings. The average 3M Company price target of $173.69 represents 18.4% upside potential.

Conclusion

3M Company had a strong 2021, increasing its sales by 9.9% and net income by 8.7%. The stock trades near its 52-week low and has an attractive dividend yield of over 4%.

In a turbulent 2022 year amid tighter monetary policy by the Fed and recent geopolitical concerns, MMM stock could offer a good risk-adjusted return, as it has a beta lower than 1.0, which classifies it as a defensive stock.