Too Many Obstacles to Count on 3M Stock

Stocks to sell

Things are going from bad to worse for conglomerate 3M (NYSE:MMM) stock.

Source: Pavel Kapysh / Large

The maker of Scotch Tape, Post-It notes and Ace bandages has been hammered on Wall Street for close to a year now. MMM stock is down 13% year-to-date, and has collapsed more than 30% since April 2019.

And what’s more, there seems to be little indication that a turnaround is in store any time soon for MMM stock. Headwinds in China over the automotive market and the COVID-19 coronavirus outbreak are formidable obstacles for 3M.

MMM gets a “D” grade in my Portfolio Grader, so you know I’m steering clear of MMM stock for the foreseeable future.

Let’s take a look at its prospects for the rest of 2020.

MMM Stock at a Glance

3M deals in five segments:

  • Industrials, including tapes, sealants and paint finishing and detailing products
  • Safety and graphics, including reflective sheeting on highway signs and license plates, protective eyewear, hearing protection and disposable respirators
  • Health care, including medical tapes and dressings, inhalers, dental adhesives, tooth whitening products and computer health information software.
  • Electronics and energy, including products used in computer monitors, LCD televisions, notebook PCs, cell phone and tablets and desktop computers.
  • Consumer, including well-known products under the Post-It, Nexcare, Scotch-Brite and Scotch brands.

It its most recent earnings report, MMM reported quarterly earnings of $1.95 per share, badly missing estimates of $2.10 per share. Revenues of $8.11 billion were down from $7.95 billion a year ago.

The company’s inability to consistently meet its own estimates — it missed twice in the last four quarters — is a troubling trend.

Looking ahead, 3M is expecting 2020 sales to be in a range from flat to 2% growth, with earnings of $9.30 to $9.75 per share. But even that modest goal may be difficult to hit considering MMM’s recent track record. In the last quarter, MMM’s sales in the U.S. fell by nearly 3% and sales in Asia fell 1.7%.

None of the company’s business segments had sales growth for the fourth quarter.

That doesn’t bode well for MMM in 2020.

The Coronavirus and MMM Stock

Wait a minute, you might be saying. Doesn’t 3M make face masks? Those things are flying off the shelves, so won’t MMM see increased sales from that segment in 2020?

True enough, MMM stock popped a bit when Vice President Mike Pence — the  public face of the White House’s coronavirus response — said that the government was contacting 3M and other companies to produce 35 million more face masks per month.

But it’s not as if these masks are big money-makers. With a retail price of $1 or so per N95 mask, there’s only about $420 million in extra revenue to be had in a year from the government’s order — and 3M surely can’t expect to get 100% of that pie.

After expenses, any revenue gain that 3M will get on extra surgical masks will barely be a blip for a company that sells $32 billion a year in products. And it will be dwarfed by the revenue that MMM will lose to its exposure in the industrial and automotive sectors, which are likely to be hurt by reduced production.

The Bottom Line on MMM Stock

One thing that MMM has going for it its dividend — now at 4% thanks to depressed stock prices, 3M has managed to increase its payout for 61 consecutive years and has a healthy payout ratio of 62%.

But even if you’re thirsty for yield, there are many other places in the stock market where you can find strong dividends and a stock with a healthier bottom line. MMM is a stock to avoid until it can provide better sales growth and consistently hit its earnings targets.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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