3M Company (NYSE:MMM) is scheduled to report its Q1 2021 results on Tuesday, April 27. We expect 3M to likely post revenue and earnings below the street expectations, due to continued pressure on its automotive aftermarket, oral care business, as well as office supplies, owing to the pandemic. That said, on the positive side, we expect the company to continue to see higher demand for home improvement as well as personal safety businesses. We expect the company to navigate well based on these trends over the latest quarter, and post a y-o-y growth in sales as well as earnings.
However, our forecast indicates that 3M’s valuation is around $196 per share, which is 3% below the current market price, implying the stock appears to be fully valued at the current levels of $202. Our interactive dashboard analysis on 3M’s Pre-Earnings has additional details.
(1) Revenues expected to be slightly below the consensus estimates
Trefis estimates 3M’s Q1 2021 revenues to be around $8.4 Bil, slightly below the $8.5 Bil consensus estimate. The gradual opening up of economies and vaccination programs in the U.S. has resulted in a pickup in industrial demand, and this should bode well for 3M’s overall revenue growth in the near term. Looking back at Q4 2020, revenues grew 5.8% y-o-y to $8.6 Bil, with gains in home improvement as well as personal safety businesses. Our dashboard on 3M’s Revenues offers more details on the company’s segments.
2) EPS also likely to be below the consensus estimates
3M’s Q1 2021 adjusted earnings per share (EPS) is expected to be $2.25 per Trefis analysis, slightly below the consensus estimate of $2.29. 3M’s net income of $1.4 billion in Q4 2020 reflected a 22% rise from its $1.1 billion figure in the prior-year quarter. This can be attributed to higher revenues and improved margins, driven by a y-o-y decline in both SG&A and R&D expenses. However, 3M will likely see margin pressure in Q1, owing to the restructuring initiatives, including certain divestitures, the company has undertaken in the second half of 2020. For the full-year 2021, we expect the adjusted EPS to be $9.61 compared to $8.74 in 2020.
(3) Stock price estimate slightly below the current market price
Going by our 3M’s Valuation, with an adjusted EPS estimate of around $9.61 and a P/E multiple of around 20x in 2021, this translates into a price of $196, which is slightly below the current market price of around $202. The P/E multiple of 20x for 3M is slightly above the 18x figure seen in 2018 and in-line with the levels of 20x seen in 2019 and as recently as late 2020.
Although the continued challenges in the automotive aftermarket and office supplies, among others, will have some impact on 3M’s overall revenue growth rate in the near term, we believe the demand for the personal safety and home improvement businesses will continue to see strong growth in the near term. Furthermore, with the resumption of economic activities, the demand for 3M’s products in industrial application will also rise, boding well for its top-line expansion. However, these factors are already priced in the current stock value of $202 per share, in our view, implying there is not much room for growth for MMM stock in the near term.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year
While MMM stock may be fully valued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for 3M vs. Ingevity.