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3M (MMM) to Fortify HIS Business on MModal's Buyout Deal

Zacks Equity Research

3M Company MMM recently signed a definitive agreement to acquire the technology business of MModal IP LLC, for an aggregate enterprise value of $1 billion. The deal is expected to strengthen the company’s Health Information Systems’ (‘HIS’) business over the long term. The buyout, which is currently subject to regulatory consents and customary closing conditions, will likely close by the first half of 2019.

Inside the Headlines

MModal is a prominent healthcare technology provider of conversational Artificial Intelligence (AI)-powered systems. Physicians are able to appropriately capture and improve their patient’s narrative with the help of these cloud-based solutions. This aids in extending patient-care time and also improves the quality of healthcare services. MModal’s Pittsburgh, PA-based technology business generates $200-million revenues on an annualized basis.

The acquisition will boost 3M’s HIS business that currently provides services to more than 8,000 healthcare institutes across the globe. State-of-the-art offerings of this business (including 3M 360 Encompass software platform) appropriately combine the risk assessment methodologies with the clinical documentation systems. This helps capture, analyze and advance the patient information. Moreover, inclusion of MModal’s technology business will likely reinforce 3M’s health priority growth platform and expand its revenue cycle-management capabilities.

The buyout agreement excludes MModal’s coding, transcription, scribing services businesses. Both companies will mutually provide services to their customers through these businesses, moving ahead.

3M anticipates that the transaction will dilute its earnings by 10 cents per share in the first 12 months of the deal’s closure.

Zacks Rank and Price Performance

At present, 3M carries a Zacks Rank #4 (Sell).

Over the past three months, the stock has lost 11.6% compared with the 18.3% decline recorded by the industry it belongs to.

 

Rising cost has been a major cause of concern for 3M for the last few quarters. High retirement benefit cost, interest expenses and inflation in the prices of major inputs (on account of tariffs levied over U.S. imports) primarily resulted in this upswing. 3M believes material inflation will persist in the upcoming quarters as well.

Rising cost, if not checked, will continue to dampen the company's profitability in the long term. Notably, 3M projects earnings of $9.90-$10.00 per share in 2018, lower than the previous view of $10.20-$10.45 per share.

Stocks to Consider

Some better-ranked stocks in the same space are listed below:

Crane Co. CR currently carries a Zacks Rank of 2 (Buy). The company pulled off a positive average earnings surprise of 5.04% in the past four quarters. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Federal Signal Corporation FSS also holds a Zacks Rank of 2. The company generated a positive average earnings surprise of 21.18% in the trailing four quarters.

ITT Inc. ITT is another Zacks #2 Ranked stock. The company came up with a positive average earnings surprise of 5.72% during the same time frame.

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