3M stock rally has stalled: brace for impact on Oct. 22

The 3M stock price has done well this year, making it one of the best-performing companies in the S&P 500 index. It has soared to a high of $140.70, its highest point since September 21, and by over 105% from its lowest point in 2023. This recovery has brought its market cap to over $74 billion.

3M turnaround approach

3M has done well this year as investors predict that its past woes are behind it going forward. As you recall, the company faced major headwinds in the past few years that have cost it billions of dollars.

In April, the company settled with public water suppliers for its PFAS or forever chemicals, agreeing to pay a $10.3 billion fine over 13 years. It agreed to pay $2.9 billion this year followed by $1.8 billion, $0.4 billion, $2.6 billion, and $1.6 billion in the next four consecutive years. The remaining amount will be paid in a reducing balance.

3M also agreed to pay $6.5 billion for selling faulty earplugs that led to hearing loss to the US military. As with the PFAS settlement, the funds will be paid over time, with $1 billion of it being in the form of stock. 

The company has now taken measures to simplify and improved its business. The most important measure was to spin off Solventum, its healthcare business that provides solutions like advanced wound care, sterilisation assurance, surgical solutions, and oral care.

3M still holds a substantial stake in Solventum, a company whose stock has surged by over 44% in the last three months, bringing its market cap to over $12.5 billion. As with other spin offs, it will likely continue reducing its stake in the company, and use the proceeds to reduce debt and pay fines. 

As part of the turnaround, the company has introduced Bill Brown as the new CEO. As part of his strategy, Brown wants to boost product development, simplify its operations by selling some underperforming divisions, and then focus to higher growth areas.

Brown has a history of turning around large companies, including Harris Corp and L3Harris, one of the top defense contractors in the US.

Slow growth across segments

In the last earnings call, he agreed with analysts that 3M’s portfolio of products was made up of ageing brands that were growing slowly. As such, as part of his strategy, he his open to implementing several large acquisitions. 

The most recent results show how these brands have contributed to slow growth. For example, in the safety and industrial division, the company generated an organic growth of 1.1% in the previous quarter. The three sections in this division: industrial adhesives, abrasives, and personal safety recorded low-single-digit growth.

The transport and electronics division had an adjusted organic growth of 3.3%, while its consumer segment had a negative organic growth of 1.4%. Therefore, the company needs to make major changes, in terms of R&D and acquisitions to boost this growth. 

Fortunately, the company’s stock and strong balance sheet of over $10 billion in cash will help it do some large acquisitions. The CEO said:

“While no acquisitions are on the near-term horizon, I will be taking a fresh, dispassionate look at our portfolio to determine if any assets have greater value owned by others, and along the same line, what assets might be a good fit for 3M.”

The next catalyst for the 3M stock will be its upcoming earnings scheduled on Tuesday, October 22nd. 

These results will help to show whether the company was making progress. Analysts expect that its revenue will come in at $6 billion, followed by $5.8 billion in the fourth quarter. 

Its annual revenue is expected to be $23.62 billion followed by $24.4 billion next year. This year’s numbers will be weaker than in 2023 because of the Solventum spin off.

3M has also continued to reward its shareholders. It has boosted its dividends in the last 65 years, making it one of the top dividend kings. It is also repurchasing substantial shares. It bought $400 million last quarter and plans to continue doing so this year.

3M stock price analysis

3M chart by TradingView

The weekly chart shows that the 3M share price has been in a strong bull run in the past few years. This trend started after it bottomed at $68.43 in August last year.

3M shares have formed a golden cross pattern as the 50-week and 200-week moving averages have crossed each other. This trend means that bulls are in control for now.

The stock is also forming a cup and handle pattern, a popular bullish sign. Therefore, the 3M share price will continue rising as bulls target the key resistance point at $150, its highest point in May 2021.

Read more: Institutional investors load up on 3M and UiPath stock

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