Why Has 3M’s Stock Risen Over 20% Since The Beginning Of The Year?

by Trefis Team
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The stock of 3M (NYSE:MMM) reached an all-time high on July 14, and closed at $180.90. The company’s stock has risen over 20% since the beginning of this year, outperforming both the S&P 500, as well as the Dow Jones Industrial Average (DJIA). As can be seen in the graphs below, the return on $10,000 invested in 3M is much higher, as compared to the same amount invested in the S&P 500 or DJIA.

3M Stock Price

3M Return

The company managed to beat the consensus estimates for its earnings and revenue during the first quarter. Growth in the quarter was driven by its Health Care, Safety & Graphics, and Consumer segment. The company’s Health Care segment is expected to be a big revenue generator for the company in the long run. The company has witnessed historically higher growth rate in this segment, as compared to its other segments, and has taken a number of steps to bolster growth in the future. The company made a decision to invest and further grow its Health Information Systems (HIS) business, instead of selling or spinning it off. This will be beneficial to the company in the long term due to the high growth expected from the Health Care IT market in the future. Further, the company has made significant investments to boost its presence in the health care field. 3M completed the acquisition of Ivera Medical Corp., which develops innovative products to reduce complications for patients with I.V. catheters, in 2015.

3M Q1 Surprise

3M has also managed to improve its margins, by trimming its costs efficiently. The company’s ability to raise its margins has helped it to increase income, despite sluggish sales growth lately. If the impact of Q4 2015’s restructuring are not included, the company has managed to expand its margins year-on-year for 10 consecutive quarters. During Q1 2016, the margins grew to 24.1%, from 22.8% a year earlier. This was primarily driven by lower raw material costs and higher selling prices. Further, productivity gains from the restructuring also played a part. The company also has a higher margin than its competitors, and can be considered a market leader in this regard.

3M vs Competitors

3M also hosted a meeting with its investors and analysts and issued a new five-year plan, which listed the financial objectives of the company, and described how the company can position itself to deliver consistently strong performances in the current year, as well as in the future. President and CEO Inge G. Thulin also discussed plans to strengthen and streamline its supply chain and a how a greater focus on lean six sigma would result in improved customer service, operational efficiencies, and an increased cash flow. Their focus on R&D was highlighted by the showcasing of their newly opened facility, which would house 700 scientists to foster innovation and close collaboration between businesses and customers. The company also reaffirmed their 2016 guidance. While the plan is ambitious, it does seem achievable. As long as the U.S. Dollar doesn’t continue rising, the foreign currency headwinds will abate, and would reduce the pressure on the company’s earnings immensely. For the past four years, 3M’s organic revenue growth rate has been 1.5 times the Industrial Production Index, and its margins are in the top decile of its peers. While a recession or supply interruptions may cause havoc, the company should be able to achieve their financial goals.

3M Financials

Have more questions on 3M? Have a look at these links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for 3M.
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