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3M

3M Company, an American multinational conglomerate, reported a better-than-expected profit in the third quarter as the company saw sequential improvements in demand for its healthcare products during the coronavirus pandemic.

The U.S. technology company said its third-quarter sales grew 4.5% year-on-year to $8.4 billion. Organic local-currency sales grew 0.9%, while acquisitions, net of divestitures, increased sales by 3.0%. Total sales grew 25.5% year-on-year in health care, 6.9% in safety and industrial, and 5.6% in consumer, with a decline of 7.4% in transportation and electronics.

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The maker of N95 masks reported its both third-quarter GAAP and adjusted earnings were $2.43 per share, resulting in year-on-year declines of 10.7% and 5.8% on a GAAP- and adjusted-basis, respectively. According to Reuters, analysts on average had expected quarterly earnings of $2.26 per share on revenue of $8.32 billion.

At the time of writing, 3M share traded 1.94% lower at $164.22 on Tuesday; the stock is down about 7% so far this year.

Executive Comments

“Though economic uncertainty and challenges due to the COVID-19 pandemic remain, we returned to positive organic sales growth with sequential improvement across businesses and geographies. We posted another quarter of robust cash flow, aggressively managed costs and further strengthened our balance sheet,” said Mike Roman, 3M chairman and chief executive officer.

“We continue to take actions to transform 3M and position us to deliver strong results as our end markets recover. We will invest where demand is strong, aggressively manage our cost structure, and create new innovations that address customer needs and global market trends.”

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3M Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $170.20 with a high forecast of $197.00 and a low forecast of $145.00. The average price target represents a 3.63% increase from the last price of $164.24. From those ten analysts, one rated “Buy”, seven rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $173 with a high of $210 under a bull-case scenario and $129 under the worst-case scenario. The firm currently has an “equal-weight” rating on the technology company’s stock. 3M had its price target upped by equities researchers at UBS to $145 from $138.

Several other analysts have also recently commented on the stock. Gordon Haskett upgraded shares of 3M from an “underperform” rating to a “hold” rating and set a $170 target price. Credit Suisse Group boosted their target price to $197 from $179 and gave the company an “outperform” rating in Sept. At last, JP Morgan upped their target price to $170 from $159 and gave the company a “neutral” rating.

In July, Barclays boosted their price target to $157 from $156 and gave the company an “underweight” rating. Royal Bank of Canada raised their price objective to $170 from $158 and gave the stock a “sector perform” rating.

Analyst Comments

“We view 3M’s (MMM) COVID-19 disruption to be slightly more impactful than the average company in our group given their cyclical end markets. We expect growth to normalize in 2021, but with significant disruptions to revenue in the short-term,” said Joshua Pokrzywinski, equity analysts at Morgan Stanley.

“We expect 3M to see organic growth declines for 2020 as select end markets, particularly cyclical markets like Auto, Industrial, and certain parts of Electrical remain challenged. While we had been wary of extended valuations entering 1Q, the pullback looks more in line with historical levels to us,” Pokrzywinski added.

Upside and Downside Risks

Upside: 1) A resolution of the PFAS issue would drive a positive reaction in the stock and multiple rerating. 2) Stabilizing end markets (in particular, auto/electronics/China) would provide upside exceeding our bull case- highlighted by Morgan Stanley.

Downside: A majority of 3M’s businesses are levered to general industrial short cycle momentum. A broader industrial slowdown could disproportionately impact 3M’s ability to hit its long-term targets.

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