3M Company MMM is poised for growth on the back of its cost-control actions, portfolio reshaping actions and improving supply chains.
Let’s delve deeper to unearth the factors that make investing in this Zacks Rank #2 (Buy) company a smart choice now.
Business Strength: Within the Safety and Industrial unit, strength in the automotive aftermarket business bodes well for 3M. Growth in the auto OEM (Original Equipment Manufacturer) business should aid the Transportation and Electronics segment. Organic sales growth in the medical solutions and oral care business is benefiting the Healthcare segment, while muted growth in home, health and auto care should aid the Consumer unit. With improving supply chains, the company anticipates improvements in organic growth, operating margins, earnings and cash flow in due course of the year.
Restructuring Actions: 3M is undertaking restructuring actions to reduce costs and improve margins and cash flow in the long term. The organizational restructuring has impacted approximately 6,000 positions globally. This is in addition to the reduction of 2,500 global manufacturing roles announced this January. MMM expects these actions to yield annual pre-tax savings of $700 million-$900 million, approximately half of which is expected to be realized in 2023. The company’s pricing actions (to mitigate the adverse impact of raw material and logistics cost inflation), restructuring savings and spending discipline should support its margins.
Rewards to Shareholders: 3M is committed to rewarding its shareholders handsomely through dividend payments and share buybacks. In the first half of 2023, MMM rewarded its shareholders with $1,655 million in dividend payments and $29 million in buybacks. Strong free cash flow generation supports its shareholder-friendly measures. Adjusted free cash flow at the end of the second quarter was $2409 million, up 35.3% year over year. The company anticipates an adjusted operating cash flow of $5.9-$6.3 billion for 2023. In February 2023, MMM hiked its quarterly dividend by 0.7% to $1.50 per share.
3M Company Price and Consensus
3M Company price-consensus-chart | 3M Company Quote
Portfolio Reshaping Actions: 3M’s portfolio reshaping actions are expected to enhance its shareholder value over time. In August, the company sold certain assets from its dental local anesthetic portfolio (formerly part of the dental materials business within the Oral Care Solutions division) to Pierrel. The divestment will help 3M divert resources to the Health Care business' core Oral Care technologies. In October 2022, MMM completed the sale of its Neoplast and Neobun brands to Selic Corp. The company also divested the manufacturing assets of its Ladlumkaew, Thailand, facility to Selic Corp.
Northbound Estimate Revision: The Zacks Consensus Estimate for 3M’s 2023 earnings has been revised upward by 3.5% in the past 60 days.
Other Stocks to Consider
Below we discuss some other stocks worth considering within the Industrial Products sector:
Flowserve Corporation FLS presently sports a Zacks Rank #1 (Strong Buy). The company pulled off a trailing four-quarter earnings surprise of 6.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
Flowserve has an estimated earnings growth rate of 79.1% for the current year. The stock has jumped 31.2% so far this year.
Graham Corporation GHM currently flaunts a Zacks Rank #1. The company pulled off a trailing four-quarter earnings surprise of 243.1%, on average.
Graham has an estimated earnings growth rate of 400% for the current fiscal year. The stock has rallied 68.7% so far this year.
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