After nearly a 20% fall year-to-date, at the current price of around $144 per share, we believe 3M stock (NYSE: MMM) is undervalued. MMM stock fell from about $180 in early January to $144 now. The -20% move for MMM so far this year compares with -11% returns for the broader S&P500 index. Looking at the longer term, MMM stock is down 24% from levels seen in late 2018. This marks a significant underperformance compared to its peers and the broader markets, with Honeywell stock rising 44%, Corning stock up 22%, and the S&P 500 index rising 70% over the same period. Our dashboard – Why 3M (MMM) Stock Moved – provides more details on the factors behind this move over the last three years.
Now, much of this decline over the last three years was driven by the company’s P/S ratio, which plummeted from 3.3x in 2018 to 2.3x currently. 3M’s revenue increased 8% to $35 billion over the last twelve months, compared to $33 billion in 2018. The pandemic resulted in higher demand for masks, home improvement, and safety products, while demand for industrial products declined. The total shares outstanding declined to 575 million currently, compared to 588 million in 2018. This meant that revenue per share rose 10% to $61.52 in the last twelve months, vs. $55.68 in 2018.
With the economy largely opened up, 3M can look forward to a rise in industrial products demand. However, the transportation business is likely to see some headwinds in the near term, given the impact of the semiconductor chip shortage on the overall automobile industry. We estimate 3M’s valuation to be $185 per share, which is 28% above its current market price of $144. This represents a forward P/EBITDA of 11x based on 3M’s EBITDA.
While we believe that MMM stock is undervalued currently, there are near-term headwinds. Given the geopolitical tensions between Russia and Ukraine, it is likely that the broader markets may remain volatile in the near term, impacting MMM stock as well. In such a scenario, it will be helpful to look at the expected performance of MMM stock in the near term.
MMM stock has seen a fall of 10% in a month, owing to the volatility in the stock markets. Given the recent decline, will it continue its downward trajectory, or is a rise imminent? Going by historical performance, there is a higher chance of a rise in MMM stock over the next month. Out of 85 instances in the last ten years that MMM stock saw a twenty-one-day fall of 10% or more, 53 of them resulted in MMM stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 55 out of 85 or about a 62% chance of a rise in MMM stock over the coming month. See our analysis on 3M Stock Chance of Rise for more details.
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|S&P 500 Return||-3%||-11%||90%|
|Trefis MS Portfolio Return||-4%||-14%||239%|
 Month-to-date and year-to-date as of 3/16/2022
 Cumulative total returns since the end of 2016