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3M (MMM) Divests Gas and Flame Detection Business to Teledyne

Zacks Equity Research

3M Company MMM has announced, on Aug 1, that it completed the divestment of its gas and flame detection business to Teledyne Technologies Incorporated TDY. The aforementioned transaction, originally announced in June, was valued at $230 million in cash.

Notably, 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.

Discussion on Divestment

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, 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, 3M sold Simtronics, Oldham, Detcon and GMI brands of the gas and flame detection business, except for the Scott Safety brand. The divestment transaction will enable the company to concentrate on more relevant businesses in its Personal Safety Division.

3M anticipates gaining 20 cents per share from this divestment, of which roughly 7 cents has been recorded in the second quarter.

Inorganic Activities of 3M

The company's value model comprises four priorities — Portfolio, Innovation, Transformation, and People and Culture. With respect to its Portfolio priority, it 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 0.9% to 3M’s second-quarter 2019 sales while divestitures negatively impacted results by 0.8%.

Zacks Rank & Stocks to Consider

With a market capitalization of nearly $98.1 billion, 3M currently carries a Zacks Rank #4 (Sell). The company faces headwinds arising from higher taxes, restructuring charges, high debts and unfavorable movements in foreign currencies. For 2019, it predicts earnings of $9.25-$9.75 per share, down from $10.46 recorded in 2018. Organic sales growth is predicted to be (1)-2%, down from 3.2% in 2018.

The Zacks Consensus Estimate for the company’s earnings is pegged at $9.29 for 2019, suggesting a decline of 11.2% from the year-ago quarter figure.

3M Company Price and Consensus


3M Company Price and Consensus

3M Company price-consensus-chart | 3M Company Quote

Notably, 3M’s shares declined 1.62% on Aug 2, ending the trading session at $170.55. The company’s shares have declined 6.8% against 3.5% decline recorded by the industry in the past three months.

Two better-ranked stocks in the industry are Federal Signal Corporation FSS and Carlisle Companies Incorporated CSL. While Federal Signal currently sports a Zacks Rank #1 (Strong Buy), Carlisle Companies 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 16.48% for Federal Signal and 17.16% for Carlisle Companies.

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