3M: A Company for All Seasons?
Thanks to growing sales overseas and cost-cutting efforts, this company's prospects for the new year are bright.
From Scotch tape to Littman stethoscopes to reflective stop signs, 3M does it all. Well, maybe not everything, but the company (symbol MMM) makes more than 50,000 products.
Even more impressive than 3M's array of wares, however, are its prospects for 2008.
The St. Paul, Minn., diversified giant forecasts double-digit growth in sales and earnings per shares next year. Thanks in part to robust overseas operations and favorable foreign-exchange rates, 3M projects that earnings will rise 10% next year, to $5.44 to $5.47 a share.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Sales from existing businesses are expected to grow 5% to 9%, with acquisitions adding more than 3 percentage points to those estimates, analysts say. Based on current exchange rates, the weak dollar is expected to add 2 to 3 percentage points of growth.
"3M is rejuvenated and the new strategy is working," says Deutsche Bank Securities analyst David Begleiter. He credits the company for revitalizing its research and development, cutting costs and accelerating sales growth while maintaining profit margins.
Sales grew 10% in the first nine months of 2007, while gross margins (sales minus cost of goods divided by sales) increased slightly, from 22% in 2006 to 23% so far this year. Plus, the company has improved its pipeline of new products--everything from improvements in dental braces to spray starch that includes stain repellent. This is no small feat considering 3M's wide-ranging catalogue of goods.
For example, about 95% of the sales of the traffic-safety and commercial-graphics division, which makes light-reflective street signs and pavement markings, are products created less than four years ago, says Begleiter. The division is also benefiting from construction of new roads and bridges and repair of existing infrastructure in both developed and developing countries.
Product diversity inoculates the company against a slowing U.S. economy, chief executive officer George Buckley told investors on December 12. Plus, some of the company’s fast-growing businesses are in defensive segments of the economy, such as health care, security, transportation and education.
Rapid growth in emerging nations is clearly helping 3M. Sales to developing countries, particularly those in Eastern Europe, the Middle East and Africa, have grown 19% per year since 2002. More than 60% of 3M's $24 billion in revenue over the past 12 months has come from overseas operations.
What’s not to like? Optical film has underperformed for 3M. Earnings from this division are expected to fall 20% as the company seeks to sell more film at lower prices in the face of strong competition. But gains from other segments will offset the headwinds in film, Begleiter says.
The stock, which has a market value of $60 billion, looks attractively priced. The shares, which closed at $85.94 on December 26, trade at 16 times the $5.44 per share that analysts, on average, expect 3M to earn in 2008. That's below 3M's average historical price-to-earnings ratio of 19.
For 2007, the stock has gained 10%. Begleiter rates the shares a buy and has a 12-month price target of $105. They're certainly worth a look.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Stock Market Today: Dow Climbs 288 Points After Amazon, Intel Earnings
Post-earnings strength from Amazon and Intel helped cushion the blow of a disappointing October jobs report.
By David Dittman Published
-
Nvidia Stock Is Joining the Dow. Is It Time to Buy?
Nvidia will replace Intel in the Dow Jones Industrial Average this Friday. What does it mean for the stock?
By Dan Burrows Published
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have Today
Google parent Alphabet has been a market-beating machine for ages.
By Dan Burrows Published
-
Stock Market Today: Stocks Renew Rally Ahead of Mag 7 Earnings
The Dow Jones led the major indexes higher on the strength of old-school industrial stalwart 3M.
By David Dittman Published
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
By Dan Burrows Published
-
Stock Market Today: Stocks Retreat Ahead of Nvidia Earnings
Markets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
By Dan Burrows Published
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in Focus
Nvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
By Karee Venema Published
-
Stock Market Today: Dow Hits New Record Closing High
The Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
By Karee Venema Published
-
Stock Market Today: Stocks Pop After Powell's Jackson Hole Speech
Fed Chair Powell's Jackson Hole speech struck a dovish tone which sent stocks soaring Friday.
By Karee Venema Published
-
Stock Market Today: Stocks Drop Ahead of Powell's Jackson Hole Speech
Sentiment turned cautious ahead of Fed Chair Powell's highly anticipated speech Friday at the Jackson Hole Economic Symposium.
By Karee Venema Published