We have issued an updated research report on 3M Company (NYSE:) on May 13.
This conglomerate currently carries a Zacks Rank #4 (Sell). Its market capitalization is approximately $101.4 billion.
Let’s delve deeper and discuss what led to the company’s poor investment appeal.
Share Price Performances & Earnings Estimate Revision: Market sentiments have been against 3M for quite some time now. Its stock price has decreased roughly 16.7% in the past three months against the industry’s growth of 1.7%.
It is worth noting here that the company recorded weaker-than-expected results for the first quarter of 2019, with earnings and sales lagging estimates by 10.8% and 2.8%, respectively. The company’s stock price has decreased roughly 8.7% since the earnings results released on Apr 25, 2019.
Furthermore, earnings estimates for the company for 2019 and 2020 have been lowered in the past 30 days. Currently, the Zacks Consensus Estimate is pegged at $9.57 for 2019 and $10.54 for 2020, reflecting a decline of 8.9% and 7.3% from respective 30-day-ago numbers.
3M Company Price and Consensus
3M Company price-consensus-chart | 3M Company Quote
Lowered Projections: 3M’s top-line results in the first quarter of 2019 decreased 5% year over year due to forex woes and the adverse impact of divestiture. Also, automotive and electronics businesses (combined results) declined in a mid-single digit in the quarter. However, its bottom line decreased 10.8%.
For 2019, the company lowered earnings projection to $9.25-$9.75 per share from the previously stated $10.45-$10.90. Organic sales are expected to decline 1% to grow 2%, down from the earlier growth expectation of 1-4%. For segments, organic sales are predicted to decline 1% to grow 2% for Safety & Industrial, and decline 3% to remain flat for Transportation & Electronics. Also, tax rate of 20-22%, higher than 20% in 2018, might be an impediment.
Net cash flow from operating activities is predicted to be $6.4-$7.2 billion, down from previously mentioned $7.7-$8.4 billion, while free cash flow is projected to be $4.7-$5.6 billion, down from the prior $5.8-$6.7 billion.
Higher Costs and Expenses: 3M’s cost of sales increased 1.7% year over year in the first quarter of 2019. Raw material prices inflated during the quarter but pricing actions came in as a relief. Higher cost of sales in the quarters ahead might be detrimental, if uncontrolled. Also, the company predicts that it will likely record pre-tax charges of roughly $150 million related to restructuring actions in 2019.
Forex Woes: Geographical diversification exposed 3M to headwinds arising from geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. Notably, forex woes lowered sales by 3.4% in the first quarter of 2019.
For 2019, the company expects unfavorable movements in foreign currencies to adversely impact sales by 1%.
Stocks to Consider
Some better-ranked stocks in the industry are Carlisle Companies Incorporated (NYSE:) , Federal Signal Corporation (NYSE:) and Honeywell International Inc. (NYSE:) . While Carlisle Companies currently sports a Zacks Rank #1 (Strong Buy), Federal Signal and Honeywell International carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimates for these three companies for the current year have improved over the past 60 days. Further, positive earnings surprise for the last four quarters was 19.07% for Carlisle Companies, 21.75% for Federal Signal and 3.50% for Honeywell International.
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