Growing End-Markets Will Support Sales Of 3M’s Health Care Products

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3M’s (NYSE:MMM) Health Care segment accounted for 17% of its revenues in 2013 and the first half of 2014. [1] The segment offers stability and growth to 3M’s revenues since it is one of the more defensive sectors. People cannot avoid spending on healthcare and therefore healthcare products and services tend to see consistent demand. We believe that continued growth in end markets will drive sales of 3M’s Health Care segment. Most of this growth is expected to come from developing markets due to their growing income levels and economic progress.

3M offers bandages, medical tapes, stethoscopes, garments such as surgical drapes and masks, drug delivery systems such as inhalers and patches, dental and orthodontic products such as tooth whiteners, sealants, impression materials and crowns. 3M forecasts the segment’s revenue to grow 3-6% in 2014.

We currently have a stock price estimate of $142 for 3M, almost in line with its current market price.

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See our complete analysis of 3M here

3M’s Health Care segment will grow driven by growth in end-markets

3M’ Health Care segments caters to the drug delivery, infection prevention, disposable medical supplies, health care systems, food safety, and dental and orthodontic markets. These markets are expected to grow driven by greater awareness of health and prevention, a growing aging population, and an increase in life spans and implementation of government healthcare reforms.

  • Developed countries have well established health care systems and stringent safety standards, which meet the needs of the countries’ population. In contrast, developing countries have fewer healthcare facilities with weak regulation and lower standards of care, which lead to higher chances of infections in patients. As the healthcare sectors in developing countries expand, modernize and adopt better healthcare and infection prevention standards, sales of infection prevention products such as surgical drapes, masks and sterilization assurance equipment will increase. The demand for infection prevention products is expected to reach $130 billion by 2017, growing at a rate of 6.4% annually, primarily driven by developing countries. [2]
  • Drug delivery products are used to deliver drugs to a patient’s body. For example, inhalers and injections. Not only do they offer a convenient way to provide medicines to patients, in some cases they also help increase the life cycle of the medicine. They also help increase efficiency of certain drugs. The drug delivery market is expected to reach $198 billion in 2017. [3]
  • Dental equipment and consumables market will likely cross $30 billion by 2018 driven by the growing demand for cosmetic dentistry and increase in dental hygiene awareness. [4] [5] The products include restoratives, adhesives, crowns, impression materials, professional tooth whiteners and orthodontic appliances.
  • Growing need for healthcare driven by increasing awareness in developing countries will help drive growth in sales of disposable medical supplies such as medical tapes, dressings, wound closure products and orthopedic casting materials. The disposable medical supplies market is expected to grow to more than $200 billion by 2016, growing at an average rate 6.4% annually. [6]
  • Information technology is used in the healthcare sector for storage, retrieval, and transfer of patient medical information through digital means. This helps in increasing efficiency and also leads to considerable financial benefits, which is encouraging hospitals to invest in healthcare IT. A Growing complexity of healthcare operations, shift towards paperless environment, and proliferation of smart devices are driving the demand for healthcare IT systems.  The market for healthcare IT systems is projected to reach $66 billion by 2020. [7]
  • With the number of cases of food poisoning increasing due to consumption of contaminated food, food testing at various stages of the supply chain has been gaining importance, thereby driving sales of food safety testing products. The food safety testing products market is forecast to grow to $14 Billion by 2018. [8]

The various products that 3M offers as a part of its healthcare portfolio have an addressable market of greater than $600 billion. With its extensive Research & Development and acquisitions dedicated to its Health Care segment, 3M has the capability to offer products to cater to the growing needs of this market. In August 2014, 3M introduced a new dental scanner, which is the smallest in the dental equipment industry. [9] In April 2014, 3M acquired Treo Solution, [10] a healthcare data analytics and business intelligence provider, in order to enhance 3M’s healthcare information systems products.

Rising income levels and economic progress will drive sales of health care products in developing markets

Increased urbanization and economic growth has led to higher disposable incomes of the growing population in developing countries. As developing countries become stronger in terms of manufacturing and infrastructural capabilities, their focus will shift towards improving their living standards.  This will drive growth in sales of healthcare products and services.

  • Developing economies such as India and China, will outpace growth in developing economies. As per the International Monetary Fund, developing economies will grow at 4.9% and 5.3% in 2014 and 2015 respectively, whereas developed economies will grow at 2.2 and 2.3 % in 2014 and 2015 respectively. [11]
  • In developing countries, a large part of the population still resides in rural areas where they generate low incomes. As the rural population moves to urban areas in search for better livelihood, their income level begins to increase. With higher incomes, people can afford to spend on improving their standards of living and take care of their health.

3M’s healthcare products have considerable presence all over the world. Sales of these products have consistently generated double digit growth in developing countries. With growing income and economic progress, sales of 3M’s healthcare products will likely continue to increase.

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Notes:
  1. 3M’s Q2 Earnings Press Release, July 24 2014, www.3m.com []
  2. World Infection Prevention Products, www.freedoniagroup.com []
  3. GLOBAL DRUG DELIVERY TECHNOLOGY MARKET WILL REACH $198.4 BILLION IN 2017, www.visiongain.com []
  4. Global Dental Consumables Market Research Report, www.webrtc-solutions.com []
  5. Dental Equipment Market, www.marketsandmarkets.com []
  6. Global Market for Disposable Medical Supplies To Reach Nearly $200 Billion, www.prnewswire.com []
  7. Healthcare IT Market, www.prweb.com []
  8. Food Safety Testing Market worth $14,030.2 Million By 2018, www.marketsandmarkets.com []
  9. 3M Digital Oral Care Unveils New 3M™ True Definition Scanner, August 1, 2014, www.3m.com []
  10. 3M Completes Acquisition of Treo Solutions, April 1 2014, www.3m.com []
  11. IMF World Economic Outlook, April 2014, www.imf.org []