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Market Analysis

3M (MMM) Rises 21% in a Month: Is the Stock Worth Buying?
Amos · 52 Views

591A88DA-45C5-4d7b-B90F-A8AE6A6A896D

 

3M Company’s MMM shares have rallied 21% over the past month, outperforming the Zacks Diversified Operations industry’s increase of 4.8%. In contrast, the S&P 500 has declined 0.6%. The company has also outperformed other industry players like Danaher Corporation DHR and PDD Holdings Inc. PDD, which have returned 7.3% and 11.2%, respectively, over the same time frame.

Closing at $127.05 in the last trading session, the stock is trading close to its 52-week high of $128.65 and much higher than its 52-week low of $71.36. This diversified technology company’s impressive performance can be largely attributed to its strong foothold and improving conditions in major end markets.

Factors Favoring the Company
3M continued its strong momentum across its businesses with impressive financial results for the second quarter of 2024. The company’s adjusted net sales increased 1.1% year over year to $6.02 billion, driven by organic sales growth of 1.2%. It has been witnessing solid momentum in its Transportation and Electronics segment, buoyed by strength in electronics, automotive & aerospace, commercial branding and transportation end markets. Continued channel inventory normalization supported by strong growth in electronics demand is proving beneficial for the segment.

Strong momentum in the automotive electrification market supported by an increase in automotive OEM (original equipment manufacturer) build rates are also expected to augur well for the Transportation and Electronics segment in the quarters ahead. 

The company’s Safety and Industrial segment has been benefiting from a recovery in the demand environment across most of the end markets. This improvement was particularly pronounced in businesses such as industrial adhesives & tapes, personal safety and automotive aftermarket. Backed by strength across its businesses, 3M provided a stable outlook. For 2024, the company expects total adjusted organic sales to be flat to up 2% year over year.

3M has also been undertaking structural reorganization actions to streamline geographic footprint, simplify supply chain, align business go-to-market models to customers and optimize manufacturing roles to align with production volumes. The company expects these restructuring actions to reduce operational costs and improve margins and cash flow in the long term. It expects these actions to be completed by 2025 and yield annual pre-tax savings. In the second quarter of 2024, these actions, together with strong organic volume and productivity, raised 3M’s adjusted operating margin by 440 basis points year over year to 21.6%.

The company also remains focused on rewarding its shareholders handsomely through dividend payouts and share buybacks. For instance, in 2023, it rewarded its shareholders with $3.31 billion in dividends and $33 million in buybacks. Also, in the first six months of 2024, it paid dividends worth $1.2 billion and repurchased shares worth $421 million. In February 2024, 3M hiked its quarterly dividend by 1%. In 2024, 3M expects its dividend payout ratio to be approximately 40% of adjusted free cash flow.

Better-Than-Industry Returns
MMM’s trailing 12-month return on equity (“ROE”) is indicative of its growth potential. ROE for the trailing 12 months is 112.92%, much higher than the industry’s 29.32%, reflecting the company’s efficient usage of shareholders’ funds.

Stock Valuation
With a trailing 12-month price-to-earnings of 13.49X, which is much below the industry average of 20.92X, the stock presents a potentially attractive valuation for investors. Also, the stock is cheap compared with its peer, Honeywell International Inc. HON, which is trading close to the industry.

Estimate Revision Trend
Amid these, the company’s earnings estimates for 2024 have increased 1.6% to $7.20 over the past 60 days, while the same for 2025 has been raised 1.4% to $7.84.

Conclusion
Given 3M’s promising long-term prospects, strong return on equity and attractive valuation, adding the stock to one‘s portfolio appears a prudent move at present. The company’s strong fundamentals showcase its potential to deliver sustained value to investors over time and boost their confidence in its growth trajectory. The stock currently carries a Zacks Rank #2 (Buy). 

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