3M Company MMM announced the plan to divest its gas and flame detection business to Teledyne Technologies Incorporated TDY. Teledyne offered to purchase the aforementioned business for $230 million.
It is worth mentioning here that Teledyne is primarily engaged in providing engineered systems, sophisticated instrumentation, aerospace and defense electronics, and digital imaging products and software. This company is based in Thousand Oaks, CA.
Brief Discussion on Divestment Deal
3M’s gas and flame detection business comes under the Personal Safety Division, which, in turn, is part of the company’s Safety and Graphics Business Group. This business employs roughly 500 people and generates revenues of $120 million annually.
Before we discuss further on the deal, we would like to mention that the Personal Safety Division of 3M specializes in personal protection equipment and solutions like breathing apparatus, respirators, face protection and others. These products and solutions help in ensuring the safety, health and productivity of workers in various end markets — including healthcare, mining, construction, utilities, manufacturing, fire service, and oil and gas.
As part of the divestment deal, 3M will sell Simtronics, Oldham, Detcon and GMI brands of the gas and flame detection business, except for the Scott Safety brand. If this binding offer gets accepted by the company, the deal will likely close in the second half of 2019.
This divestment transaction will enable 3M to concentrate on more relevant businesses in its Personal Safety Division. Gain of 20 cents per share is likely to be recorded after the completion of this divestment.
Inorganic Activities of 3M
3M's value model comprises four priorities — Portfolio, Innovation, Transformation, and People and Culture. With respect to its Portfolio priority, the company divested its communication markets business in 2018 while acquired the technology business of M*Modal in February 2019. Also, 3M agreed to buy Acelity Inc. and its KCI subsidiaries, with deal completion expected in the second half of 2019.
It is worth mentioning here that acquisitions added 0.6% to the company’s first-quarter 2019 sales while divestitures negatively impacted results by 1.1%.
Zacks Rank & Stocks to Consider
With a market capitalization of nearly $94.7 billion, 3M currently carries a Zacks Rank #4 (Sell). The company faces headwinds arising from higher taxes, restructuring charges and unfavorable movements in foreign currencies. For 2019, it predicts earnings of $9.25-$9.75 per share, down from previously stated $10.45-$10.90. Organic sales growth is predicted to be (1)-2%, down from earlier 1-4%.
The Zacks Consensus Estimate for the company’s earnings is pegged at $9.32 for 2019 and $10.29 for 2020, suggesting declines of 11.3% and 9.5% from the respective 60-day-ago figures.
3M Company Price and Consensus
3M Company price-consensus-chart | 3M Company Quote
In the past three months, 3M’s shares have decreased 18% compared with 2.5% growth recorded by the industry.
Some better-ranked stocks in the industry are Carlisle Companies Incorporated CSL and Federal Signal Corporation FSS. While Carlisle Companies currently sports a Zacks Rank #1 (Strong Buy), Federal Signal carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For the current year, earnings estimates for the two companies have improved over the past 60 days. Further, positive earnings surprise for the last four quarters was 19.07% for Carlisle Companies and 21.75% for Federal Signal.
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