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3M (MMM) Q4 Earnings: What's in the Cards for the Stock?

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Industrial goods manufacturer 3M Company (MMM - Free Report) is scheduled to report fourth-quarter 2016 results before the opening bell on Jan 24. In the last reported quarter, 3M’s earnings beat the Zacks Consensus Estimate by a penny. In the trailing four quarters, the company has beaten earnings estimates on three occasions with an average positive earnings surprise of 4.59%.

Let’s see how things are shaping up for this announcement.

Key Factors in the Fourth Quarter

During the quarter, the company entered into a strategic agreement to divest its identity management business to Gemalto, an international digital security company. The deal worth $850 million is expected to be completed during the first half of 2017, subject to mandatory closing conditions and regulatory approvals. The business employs approximately 450 employees, who will be absorbed by Gemalto. In order to focus on its core business, management decided to sell this operating segment. Since 2012, the company has pruned its businesses from 40 to 26, thereby improving customer relevance, productivity and speed through a leaner operating structure. At the same time, 3M has maintained a steady investment in R&D to develop innovative products. The company expects to invest $1.8 billion in R&D for higher organic growth and complement it through strategic acquisitions. Although the divestures are likely to generate lower revenues in the short term, a focused operating platform is anticipated to yield higher return on investments.

In addition, 3M is facing increased pension expenses as its workforce begins to retire. The related extra costs have been a drag on the company’s bottom line. Furthermore, as exports form a significant part of the company’s operations and growth prospects, the sustained strength of U.S. dollar will continue to negatively impact the earnings in the short term.

3M also expects a lackluster performance in the fourth quarter and has narrowed its earlier guidance for 2016 during the third-quarter earnings release. Organic local-currency sales are expected to be flat as against 0–1% growth expected earlier. The company currently anticipates 2016 GAAP earnings in the range of $8.15 to $8.20 per share compared with the earlier projection of $8.15 to $8.30.

3M Co. Price and EPS Surprise


3M Co. Price and EPS Surprise | 3M Co. Quote

Earnings Whispers

Our proven model does not conclusively show that 3M is likely to beat earnings this quarter as it lacks a key component. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: 3M’s Zacks Rank #3 when combined with 0.00% ESP makes surprise prediction uncertain.

We caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

First Midwest Bancorp, Inc. (FMBI - Free Report) , with an Earnings ESP of +3.03% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Canadian National Railway Company (CNI - Free Report) , with an Earnings ESP of +2.17% and a Zacks Rank #2.

Discover Financial Services (DFS - Free Report) , with an Earnings ESP of +0.73% and a Zacks Rank #2.

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