Is There Upside For 3M Stock?
3M stock (NYSE: MMM), which currently trades at $146 per share, looks like it doesn’t have much room left for growth. The stock is down 17% year-to-date, performing in line with the broader S&P 500, which remains down by about 15% over the same period.
There are a couple of trends driving the stock lower of late. The current high inflationary environment, rising interest rates, and recession fears have weighed on industrial stocks, including 3M. Also, concerns over potential litigation costs of $33 billion for the company haven’t boded well for its stock. [1]
The company posted upbeat Q1 results last month. However, looking at some of the individual segments, lower demand for masks weighed on the safety and industrial sales growth, while continued manufacturing challenges for the automotive industry are impacting 3M’s transportation and electronics business. Of late, a recovery in demand has aided the revenue growth for its healthcare and consumer business.
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The company’s operating margin declined 390 bps to 18.6% in Q1 2022, compared to 22.5% in the prior-year quarter and 20.8% for the full year 2021. Given the current environment of higher inflation, the company may find it difficult to expand its operating margin in the near term.
Now, the concerns around economic growth, rising raw-material prices, and supply chain disruptions are genuine, and industrial companies may likely see some pain in the near term. Looking at MMM stock, at current levels of around $146 per share, it trades at under 13x projected 2022 earnings of $10.85 on a per-share basis, which compares with an average of over 16x in the last three years. We value MMM stock at about $159 per share, which is only 9% ahead of the current market price, implying a limited upside. See our analysis on 3M Valuation: Expensive or Cheap for more details on what’s driving our valuation for the company. Also, see our analysis on 3M Revenue: How Does 3M Make Money for more details on the company’s key revenue streams and how they have been trending.
While MMM stock looks to have a limited upside, it is helpful to see how 3M’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis 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 CSX vs. Simpson Manufacturing.
What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.
| Returns | May 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| MMM Return | 2% | -17% | -18% |
| S&P 500 Return | -2% | -15% | 81% |
| Trefis Multi-Strategy Portfolio | -3% | -19% | 218% |
[1] Month-to-date and year-to-date as of 5/27/2022
[2] Cumulative total returns since the end of 2016
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Notes:
- 3M’s Legal Woes Cast $33 Billion Shadow Over CEO’s Growth Plan, Ryan Beene, Bloomberg, Feb 13, 2022 [↩]