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3M (MMM) Scales New 52-Week High on Core Business Focus
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Shares of diversified conglomerate 3M Company (MMM - Free Report) scaled a new 52-week high of $209.67 during yesterday’s trading session, before closing a tad lower at $209.11 for a healthy one-year return of 27.8%. Barring minor hiccups, 3M’s share price has steadily been on an uptrend since February. This Zacks Rank #2 (Buy) stock has the potential for further price appreciation with long-term earnings growth expectation of 9.7%.
Growth Drivers
3M continues to deliver sustainable increase in earnings and free cash flow, benefiting from its long-term strategy of accelerating investment in high-growth programs. The company’s ability to convert high R&D spends into up-cycle market share gains and strong pricing powers have perennially determined its success. Organic growth remains the first priority of the company as it continues to invest in infrastructure and commercialization capability.
At the same time, the company is continuing with its portfolio restructuring efforts and has initiated some prudent steps to focus on its core portfolio of businesses. Since 2012, the company has pruned its businesses from 40 to 26, thereby improving customer relevance, productivity and speed through a leaner operating structure.
With a diligent execution of operational plans, 3M’s shares have performed relatively better than the Zacks categorized Diversified Operations industry with an average year-to-date return of 17.1% compared with 3.1% gain for the latter. Management has also raised its earlier guidance for 2017 on strong quarterly results and improved business outlook. The company anticipates 2017 GAAP earnings in the range of $8.70 to $9.05 per share, up from prior projections of $8.45–$8.80.This represents year-over-year growth of 7–11%, up from 4–8% expected earlier. Organic local-currency sales are expected to be 2–5%, up from 1–3% expected earlier, while free cash flow conversion rate is anticipated to be 95–105%.
Portfolio management, investment in innovation and business transformation are the three key areas on which the company intends to focus. 3M also intends to continue investing in capital expenditures and research and development to support organic growth as it aims at a prudent capital structure strategy and increased capital deployment. 3M's global footprint, diversified product portfolio and the ability to penetrate in different markets have been its forte. For the five-year period from 2016 to 2020, 3M expects 8–11% growth in earnings per share driven by an organic sales growth of 2–5%. The company expects about 20% return on invested capital during this tenure with a free cash flow conversion rate of 100%. Furthermore, 3M is standardizing its business processes through a new, global ERP system. The company expects these efforts to result in $500 to $700 million in annual operational savings by 2020, and an additional $500 million reduction in working capital.
All these factors probably raised investor confidence and drove the company’s shares to a fresh 52-week high.
Crane has a long-term earnings growth expectation of 10.1%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 8.4%.
United Technologies has a long-term earnings growth expectation of 8.5%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 5.4%.
Federal Signal topped estimates twice in the trailing four quarters with an average positive earnings surprise of 3.1%.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
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3M (MMM) Scales New 52-Week High on Core Business Focus
Shares of diversified conglomerate 3M Company (MMM - Free Report) scaled a new 52-week high of $209.67 during yesterday’s trading session, before closing a tad lower at $209.11 for a healthy one-year return of 27.8%. Barring minor hiccups, 3M’s share price has steadily been on an uptrend since February. This Zacks Rank #2 (Buy) stock has the potential for further price appreciation with long-term earnings growth expectation of 9.7%.
Growth Drivers
3M continues to deliver sustainable increase in earnings and free cash flow, benefiting from its long-term strategy of accelerating investment in high-growth programs. The company’s ability to convert high R&D spends into up-cycle market share gains and strong pricing powers have perennially determined its success. Organic growth remains the first priority of the company as it continues to invest in infrastructure and commercialization capability.
At the same time, the company is continuing with its portfolio restructuring efforts and has initiated some prudent steps to focus on its core portfolio of businesses. Since 2012, the company has pruned its businesses from 40 to 26, thereby improving customer relevance, productivity and speed through a leaner operating structure.
With a diligent execution of operational plans, 3M’s shares have performed relatively better than the Zacks categorized Diversified Operations industry with an average year-to-date return of 17.1% compared with 3.1% gain for the latter. Management has also raised its earlier guidance for 2017 on strong quarterly results and improved business outlook. The company anticipates 2017 GAAP earnings in the range of $8.70 to $9.05 per share, up from prior projections of $8.45–$8.80.This represents year-over-year growth of 7–11%, up from 4–8% expected earlier. Organic local-currency sales are expected to be 2–5%, up from 1–3% expected earlier, while free cash flow conversion rate is anticipated to be 95–105%.
Portfolio management, investment in innovation and business transformation are the three key areas on which the company intends to focus. 3M also intends to continue investing in capital expenditures and research and development to support organic growth as it aims at a prudent capital structure strategy and increased capital deployment. 3M's global footprint, diversified product portfolio and the ability to penetrate in different markets have been its forte. For the five-year period from 2016 to 2020, 3M expects 8–11% growth in earnings per share driven by an organic sales growth of 2–5%. The company expects about 20% return on invested capital during this tenure with a free cash flow conversion rate of 100%. Furthermore, 3M is standardizing its business processes through a new, global ERP system. The company expects these efforts to result in $500 to $700 million in annual operational savings by 2020, and an additional $500 million reduction in working capital.
All these factors probably raised investor confidence and drove the company’s shares to a fresh 52-week high.
Other Stocks to Consider
Some other stocks in the industry worth considering include Crane Co. (CR - Free Report) , United Technologies Corporation and Federal Signal Corporation (FSS - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Crane has a long-term earnings growth expectation of 10.1%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 8.4%.
United Technologies has a long-term earnings growth expectation of 8.5%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 5.4%.
Federal Signal topped estimates twice in the trailing four quarters with an average positive earnings surprise of 3.1%.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>