What’s The Upside For 3M Stock Post Coronavirus?

by Trefis Team
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Going by trends seen in 2008, 3M’s stock could see an upside of over 15% from the current levels, as the coronavirus crisis winds down. It has declined by about 14% between March 8, 2020, and March 25, 2020 (vs. a 17% decline in the S&P 500), and the stock is down over 16% since January 31, after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 26% decline in the S&P 500 since then).

Drawing lessons from the 2008 financial crisis, we see 3M stock declined from levels of around $68 in October 2007 (the pre-crisis peak) to levels of around $34 in March 2009 (as the markets bottomed out), implying 3M stock lost as much as 50% from its approximate pre-crisis peak. This marked a drop in-line with the broader S&P, which fell by as much as 51%.

Will 3M stock recover similarly from the coronavirus spread?

We compare the performance of 3M vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: 3M Stock Compared With S&P 500

  • In fact, 3M recovered strongly post the 2008 crisis, to levels of about $63 in early 2010, rising by 86% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
  • Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 30% after Saudi Arabia increased production.

Rationale Behind Stock Decline

  • Industrial companies’ stocks generally move in tandem with the broader market trend and economic growth trends.
  • With the global economy feared to go in recession, the consumer spending power will likely decline, and 3M’s transportation and electronics segment will likely face the heat.
  • Asia Pacific as a region accounts for roughly one-third of the company’s total sales. China in particular is expected to see slowdown in the near term, which will have an impact on 3M’s top line.
  • While the company is manufacturing coronavirus related products, such as masks, the contribution of such products to the company’s top line will likely be less than 1%.
  • These factors explain the drop in the company’s stock price over the recent weeks.
  • We believe 3M’s Q1 and Q2 results will confirm this reality with a drop in revenues.
  • If signs of coronavirus containment aren’t clear by the Q1 earnings timeframe, it’s likely 3M stock, along with the broader market, is going to see a continued drop when results confirm palpable reality.

Conclusion

While 3M stock has declined due to the coronavirus and oil price war crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back and see over 15% growth, when the crisis winds down.

What about timing?

Potential for 15% gains in MMM stock, and its timing, hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture, and complements our analyses of Coronavirus impact on a diverse set of industrial companies, including Honeywell, GE and Corning. The complete set of coronavirus impact and timing analyses is available here.

 

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