Shares of diversified conglomerate 3M Company (MMM - Free Report) hit a new 52-week high of $193.50 on Mar 20, before closing the trading session a notch lower at $193.01, for a healthy year-to-date return of 8.09%.
3M’s share price has been on a steady uptrend since Feb 2. Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock still appears to have enough room for further upside. The stock currently has a long-term earnings growth expectation of 9.7%.
3M has offered a relatively healthy guidance for 2017. The company anticipates 2017 GAAP earnings in the range of $8.45 to $8.80 per share, representing year-over-year growth of 4–8%. Organic local-currency sales are expected to be up 1–3% while free cash flow conversion rate is anticipated to be 95–105%.
The company remains poised for inorganic growth in order to enhance its product offering. On Mar 16, the company entered into a definitive agreement with Johnson Controls International plc (JCI - Free Report) to acquire the latter’s operating unit, Scott Safety. The deal, worth $2.0 billion, is expected to close in the second half of 2017. The acquisition will likely boost 3M’s technology, manufacturing, global capabilities and brand. In addition, it will enable the company to expand its recent portfolio actions within the Safety and Graphics business to help position it for long-term success. This acquisition will also help 3M provide a broader array of safety products and solutions to customers worldwide.
Portfolio management, investment in innovation and business transformation are the three key areas on which 3M intends to focus to gain a competitive advantage in the industry. The company also plans to continue investing in capital expenditures and research and development efforts to support organic growth. 3M's global footprint, diversified product portfolio and the ability to penetrate into different markets remain its forte.
3M has outperformed the Zacks categorized Diversified Operations industry in the last three months with an average return of 7.7% compared with 1.2% gain for the latter. In addition, the company has seen a positive move in estimates as well, over the same time period. Estimates inched up 0.5% in the current quarter. Recurring earnings for the company has grown at a CAGR (compounded annual growth rate) of 7.2% from 2009 to 2016 on revenue growth of 3.4% during this period, despite volatility in markets due to recession and other macroeconomic factors.
Furthermore, 3M is standardizing its business processes through a new, global ERP system. The company expects these efforts to result in annual savings of $500 million to $700 million by 2020. It would also bring about an additional improvement of $500 million in working capital. All these factors must have instilled investor confidence in 3M, driving its shares to a fresh 52-week high.
Stocks to Consider
A couple of better-ranked stocks in the industry include Hitachi, Ltd. (HTHIY - Free Report) and Barloworld Limited (BRRAY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hitachi has a long-term earnings growth expectation of 13% and is currently trading at a forward P/E of 13.6x.
Barloworld has a long-term earnings growth expectation of 18.7% and is currently trading at a forward P/E of 13.2x.
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