Is 3M Stock Appropriately Valued At $200?

by Trefis Team
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[Updated: 7/29/2021] 3M Stock Update

3M Company (NYSE:MMM) recently reported its Q2 results, which were better than the street estimates. The company reported sales of around $8.9 billion, up 25% y-o-y, and it was better than our forecast of $8.65 billion, and $8.55 billion consensus estimate. While the sales growth was visible across all the segments, the Transportation & Electronics segment outperformed with a 28% jump in total segment revenues, led by a strong rebound in its automotive OEM business.

Looking at the bottom-line, the company reported adjusted earnings of $2.59 per share, up 43% y-o-y, driven by both an increase in revenue as well as margin expansion. The company managed to leverage sales growth, along with restructuring initiatives, that led to margin expansion. That said, the company’s management has cautioned for a 50 to 100bps headwind on the operating margins in Q3, due to higher raw material prices.

Following a solid performance in Q2, 3M raised its full year outlook for sales to increase 7-10% and adjusted earnings to be in the range of $9.70-$10.10 per share. We have also updated our model following the Q2 release. We now estimate the sales to be $35.5 billion, up 10.3% y-o-y (vs. $34.9 billion earlier), and EPS to be $10.07, closer to the high-end of the company’s provided guidance, and 2.7% higher than our earlier estimate of $9.80. As such, our revised 3M Valuation now stands at $205 per share, based on $10.07 expected EPS and a 20x P/E multiple for 2021. However, despite the revision to our estimate, we see there is not much room for growth in MMM stock, and it appears to be appropriately valued at levels of around $200 currently.

 

[Updated: 7/22/2021] 3M Q2 Earnings Preview

3M Company (NYSE:MMM) is scheduled to report its Q2 2021 results on Tuesday, July 27. We expect 3M to likely post revenue and earnings above the street expectations, driven by a rebound in the overall economic activity, as global Covid-19 vaccination rates continue to rise. This will bode well for 3M’s automotive aftermarket as well as office supplies sales. Also, the company will likely continue to see higher demand for home improvement as well as personal safety products. We expect the company to navigate well based on these trends over the latest quarter.

However, our forecast indicates that 3M’s valuation is around $196 per share, which is 2% below the current market price, implying the stock appears to be fully valued at the current levels. Our interactive dashboard analysis on 3M’s Pre-Earnings has additional details.

(1) Revenues expected to be above the consensus estimates

Trefis estimates 3M’s Q2 2021 revenues to be around $8.65 Bil, slightly above the $8.55 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. While the U.S. GDP grew 6.4% in Q1 2021, it is estimated to have grown 8.8% in Q2. Looking back at Q1 2021, revenues grew 10% y-o-y to $8.6 Bil, with gains in automotive aftermarket as well as home improvement businesses. Our dashboard on 3M’s  Revenues offers more details on the company’s segments.

2) EPS also likely to be above the consensus estimates

3M’s Q2 2021 adjusted earnings per share (EPS) is expected to be $2.28 per Trefis analysis, slightly above the consensus estimate of $2.26. 3M’s adjusted net income of $1.6 Bil in Q1 2021 reflected a 28% rise from its $1.3 Bil figure in the prior-year quarter. This can be attributed to higher revenues and improved margins, owing to lower operating expenses. However, 3M will likely see margin pressure in Q2, owing to the increased raw materials costs. That said, for the full-year 2021, we expect the adjusted EPS to be higher at $9.80 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 $9.80 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 $201. 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.

We know that 3M is poised to benefit from an economic recovery, with growth in automotive aftermarket, personal safety and home improvement businesses, boding well for its top-line expansion. However, we believe that these factors are already priced in the current stock value of $201 per share, in our view, implying there is not much room for growth for MMM stock in the near term. That said, if the company reports upbeat results, with recovery in sales faster than our estimates, and the guidance for the full-year is revised upward, it will result in MMM stock seeing higher levels.

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.

See all Trefis Price Estimates and Download Trefis Data here

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