Is There A Better Pick Over 3M Stock?

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We believe Corning stock  (NYSE: GLW) is currently a better pick than 3M stock (NYSE: MMM), given its better prospects. Both the stocks are trading at a similar valuation of 2.0x trailing revenues. Looking at stock returns, GLW, with -9% returns this year, has fared better than MMM stock, down 28%, and the broader S&P500 index, down 17%. There is more to the comparison, and in the sections below, we discuss why we believe GLW stock will offer better returns than MMM stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of 3M vs. CorningWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Corning’s Revenue Growth Is Better

  • Corning’s revenue growth of 5.1% over the last twelve months is much better than -0.1% for 3M.
  • Even if we look at a longer time frame, Corning has posted better sales growth. Its sales rose at an average growth rate of 8.2% to $14.1 billion in 2021, compared to $11.3 billion in 2018, while 3M’s sales have risen at an average rate of 2.7% to $35.4 billion in 2021, from $32.8 billion in 2018.
  • 3M’s revenue growth over the recent years was driven by high demand for safety and personal protective equipment, while sales for some of its other products, including office products, were hit during the pandemic due to many offices being shut, given the lockdowns and shelter-in-place restrictions, resulting in lower demand.
  • However, this trend has now reversed. 3M is facing a decline in demand for safety and protective gear, while its consumer business, including home improvement, is seeing a pickup in demand post-pandemic.
  • 3M stock has been weighed down this year due to its exposure to earplugs lawsuits and concerns over slowing economic growth and its impact on 3M’s businesses.
  • For Corning, the revenue growth was driven by higher demand for gasoline particulate filters, given the increased adoption of the emission regulations in Europe and China.
  • However, more recently, Corning has benefited from a pickup in demand for optical fiber as carriers continue to expand their 5G coverage, a trend expected to continue going forward.
  • That said, a weakness in the display panel business and forex headwinds are likely to weigh on the overall revenue growth for Corning in the near term.
  • Our 3M Revenue Comparison and Corning Revenue Comparison dashboards provide more details on the revenues.
  • The table below summarizes our revenue expectation for both companies over the next three years and points to a CAGR of 1.6% for 3M and 5.2% for Corning.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

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2. 3M Is More Profitable And Comes With Lower Risk

  • 3M’s operating margin of 21.3% over the last twelve-month period is better than 17.3% for Corning.
  • This compares with 19.2% and 15.6% figures seen in 2019, before the pandemic, respectively.
  • Corning’s free cash flow margin of 20.9% is better than 19.2% for 3M.
  • Our 3M Operating Income Comparison and Corning Operating Income Comparison dashboards have more details.
  • Looking at financial risk, both are comparable. 3M’s 51.1% debt as a percentage of equity is higher than 23.9% for Corning, while its 7.4% cash as a percentage of assets is higher than 5.7% for the latter, implying that Corning has a better debt position, but 3M has more cash cushion.

3. The Net of It All

  • We see that the revenue growth has been better for Corning, while 3M is more profitable. Both stocks are comparable from the valuation and financial risk point of view.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Corning is likely to offer better returns over 3M in the next three years.
  • The table below summarizes our revenue and return expectations for MMM and GLW over the next three years and points to an expected return of 19% for Corning over this period and an 8% expected return for 3M stock, implying that investors will likely be better off buying GLW over MMM, based on Trefis Machine Learning analysis – 3M vs. Corning – which also provides more details on how we arrive at these numbers.

While GLW may outperform MMM over the next three years, 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 at how counter-intuitive the stock valuation is for GrafTech vs. Footlocker.

With inflation rising and the Fed raising interest rates, among other factors, MMM stock has fallen 28% 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.

Returns Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
MMM Return 2% -28% -28%
GLW Return 5% -9% 40%
S&P 500 Return 4% -16% 80%
Trefis Multi-Strategy Portfolio 4% -19% 221%

[1] Month-to-date and year-to-date as of 11/24/2022
[2] Cumulative total returns since the end of 2016

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