3M Retains Core Business Focus With Portfolio Restructuring

On Jan 15, we updated the research report on diversified industrial goods manufacturer 3M Company (NYSE:MMM) .

The company’s brands like Nexcare, Post-it, Scotch, Scotch-Brite, ScotchBlue and Filtrete are well recognized names in each household while being market leaders in their respective product categories. With continuous product innovations and investments in R&D, 3M aims to maintain a healthy organic growth. The company’s ability to convert high R&D spends into up-cycle market share gains and strong pricing powers determine its success. In 2018, the company plans to invest approximately $1.9 billion in R&D.

At present, the company is focused on three key metrics namely, portfolio management, investment in innovation and business transformation. For portfolio management, 3M intends to concentrate on its most profit-making and fastest-growing businesses. To this effect, the company has taken steps to prune its businesses from 40 to 24. Since 2012, 3M had done significant portfolio restructuring — divesting assets that no longer fit in its strategy and making newer investments in other more lucrative markets.

With a diligent execution of operational plans, 3M has outperformed the industry in the last three months with an average return of 11.8% compared with a gain of 1.9% for the latter.



Moving forward, 3M is standardizing its business processes through a new, global ERP system. The company expects these efforts to result in $500 to $700 million in annual operational savings by 2020, and an additional $500 million through reduction in working capital requirements.

3M has continually delivered sustainable increase in earnings and free cash flow, benefiting from its increasing investments in high-growth programs. However, the market acceptance of these new product offerings will determine the success of its growth objectives. It also remains to be seen how well the company can keep churning out these new and improved products at acceptable prices for the market.

3M's strengths include its global footprint, diversified product portfolio and the ability to penetrate in different markets. The company expects 8-11% growth in earnings per share from 2016 to 2020 driven by an organic sales growth of 2-5%. We remain bullish on such healthy growth outlook.

3M currently has a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Raven Industries, Inc. (NASDAQ:RAVN) , Bunzl (LON:BNZL) PLC (OTC:BZLFY) and Leucadia National Corporation (NYSE:LUK) each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Raven has an expected long-term earnings growth rate of 10%. It exceeded estimates thrice in the trailing four quarters with an average beat of 25.8%.

Bunzl PLC has an expected long-term earnings growth rate of 3.2%.

Leucadia National has an expected long-term earnings growth rate of 18%. It exceeded estimates thrice in the trailing four quarters with an average beat of 21.2%.

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