3M Company MMM continues to struggle with the headwinds that have marred its operational performance over the past few quarters. We expect that a continuous rise in operating expenses, among other factors, will continue to hinder the company’s growth.
It’s not surprising that the stock has also put up a dismal show in recent times. In the past six months, 3M has lost 14.8%, wider than the
industry’s decline of 5.3%. Further, the Zacks Consensus Estimate for 2018 earnings has moved south over a couple of months from $10.40 to $10.34. This indicates exceedingly bearish analyst sentiment, reflected by four downward estimate revisions versus none upward, over the same time frame.
Read on to find the major factors curbing the Zacks Rank #4 (Sell) company’s growth and why it may be prudent to avoid the stock at the moment.
Factors at Play
Rising cost of sales has been a major cause of concern for 3M over the last few quarters. Notably, the metric escalated 9.1% and 5.1% in the first and second quarter of 2018, respectively. High retirement benefit cost, interest expenses and inflation in the prices of major inputs primarily led to the rise. The company perceives that material inflation will linger in the last two quarters of 2018 as well. Rising costs, if not checked, will continue to weigh on the company’s profitability.
Also, on a P/E(TTM) basis, the stock looks overvalued compared with the industry with respective tallies of 21.6x and 18.7x for the past three-month period. Notably, the P/E(TTM) multiple is currently trading higher than the median P/E(TTM) for the same time frame. This makes us cautious about the stock.
Moreover, the company faces tremendous local competitive pressure in almost all of its operating regions. In order to hedge the competitive pressure, it has to invest significantly in R&D to locally develop and manufacture new products. This is likely to put pressure on the company’s finances and hence might impact its profitability, moving ahead.
Further, the company remains exposed to risks associated with adverse changes in foreign currency exchange rates, interest rates and commodity prices. As a matter of fact, the company generally manages these risks through forward and option contracts, price protection agreements and currency swaps. Changes in these factors may impact the company’s financials and operations.
Stocks to Consider
Some better-ranked stocks from the same space are Federal Signal Corporation
FSS, Carlisle Companies Incorporated ( CSL Quick Quote CSL - Free Report) and Crane Company CR. While Federal Signal Corporation sports a Zacks Rank #1 (Strong Buy), Carlisle Companies and Crane Company carry a Zacks Rank #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here
Federal Signal Corporation has surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 22.48%.
Carlisle Companies has surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 12.85%.
Crane Company has outpaced estimates in each of the preceding four quarters with an average earnings surprise of 3.03%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>