3M Stock To Trade Higher Post Q2?

3M Company (NYSE: MMM) is scheduled to report its Q2 2022 results on Tuesday, July 26. We expect the company to post revenue and earnings above the street expectations. The company should benefit from steady demand for its health care offerings, including medical solutions and oral care, and its consumer business, primarily home improvement. However, a continued fall in demand for respirators and headwinds for its automotive business clubbed with the impact of lockdowns in China may weigh on the company’s overall top-line growth. The company’s operating margins are expected to contract in Q2 amid rising costs. However, our forecast indicates that MMM stock has more room for growth, as discussed below. Our interactive dashboard analysis of 3M Earnings Preview has additional details.

(1) Revenues expected to be above the consensus estimates

• Trefis estimates 3M’s Q2 2022 revenues to be around $8.8 billion, down in low single-digits y-o-y but slightly above the $8.6 billion consensus estimate.
• 3M’s sales will be adversely impacted by a decline in manufacturing production in May and June. ^[1]
• Furthermore, continued headwinds for the automotive industry due to semiconductor chip shortages will also impact 3M’s transportation business.
• With the worst of the pandemic likely behind us, the demand for respirators is also falling.
• However, there is a continued demand for home improvement and the company’s health care offerings, which should offset most of the decline from the transportation & electronics and safety & industrial businesses.
• Looking back at Q1 2022, revenues were down a marginal 0.2% y-o-y to $8.8 billion, with gains in health care and the consumer being offset by a fall in safety & industrial and transportation & electronics revenue. Our dashboard on 3M’s  Revenues offers more details on the company’s segments.

(2) EPS likely to be above the consensus estimates

• 3M’s Q2 2022 adjusted earnings per share (EPS) is expected to be $2.58 per Trefis analysis, compared to the consensus estimate of $2.53 and the $2.59 figure the company reported in the prior-year quarter.
• 3M’s adjusted net income of $1.5 billion in Q1 2022 was down 12% y-o-y, primarily due to a 270 bps decline in the company’s EBITDA margins.
• Inflationary headwinds and supply chain disruption likely weighed on the company’s net margin expansion in Q2.
• For the full-year 2022, we expect the adjusted EPS to be higher at $10.85, compared to $10.12 in 2021.

(3) Stock price estimate above the current market price

• We estimate 3M’s Valuation to be around $159 per share, which is about 22% above the current market price of $130.
• At its current levels, 3M stock is trading at a forward P/E multiple of just 12x based on our EPS estimate of $10.85 for 2022, compared to the last three-year average of 18x, implying that MMM stock has some more room for growth.
• Furthermore, if the company reports upbeat Q2 results and provides an outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for MMM stock.

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 looks like it has some more room for growth, 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 3M vs. AGCO.

With inflation rising and the Fed raising interest rates, among other factors, MMM stock has fallen 27% this year. Can it drop more? See how low 3M stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

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.

[1] Month-to-date and year-to-date as of 7/18/2022
[2] Cumulative total returns since the end of 2016

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1. U.S. manufacturing production falls for second straight month, Reuters, July 15, 2022 [↩]