One of the most diversified companies in the U.S., if not the world, is 3M (NYSE:MMM). From health care to home & leisure to manufacturing to electronics, this company has all of the bases covered. But, do diversified operations alone make MMM a good buying opportunity?
As 3M hands over the reins of the company to new CEO Inge Thulin, let’s find out.
Company Overview: 3M Co. is a multinational conglomerate with a staggeringly large portfolio of more than 55,000 products—covering everything from adhesives to dental products to traffic signals to car care products.
The conglomerate’s roots stem back to 1902; it began as a stone mining operation but quickly expanded into making innovative products. Diversified across eight businesses, 3M Co. brings in just under $30 billion in sales every year.
3M Co.’s biggest competitors are Avery Dennison (NYSE:AVY), DuPont (NYSE:DD) and Johnson & Johnson (NYSE:JNJ). Of these four companies, 3M Co. has the second-highest sales growth, gross margin as well as operating margin. With operations in 60 countries, 3M Co. employs over 84,000 worldwide.
Industry Breakdown: There are 197 companies in the Conglomerates Industry. Of those, 3M co. is 16th largest in terms of market cap. Most notably, 3M Co.’s 2.7% dividend yield is the third largest in the industry, and the company’s 27.3% return on equity is sixth largest in the industry.
In addition, the company boasts the ninth highest Price/Earnings to Growth ratio, which is a ratio that determines a stock’s value while also considering earnings growth, as well as the tenth highest long-term growth rate.
Finally, the company’s sales and earnings growth falls in the top quartile in the industry. So, within the Conglomerates Industry, 3M is a comparatively strong player.
Earnings Buzz: 3M Co. reports its first-quarter operating results before the opening bell on Tuesday, April 24. Currently, analysts are looking for 2.4% sales growth and for profits to remain flat compared with Q1 2011.
By comparison, the rest of the Conglomerates industry is headed towards a -6.1% profit loss. Analysts have kept their earnings estimates largely flat over the past three months, and 3M Co. does not have a history of significant earnings surprises or misses.
So, at this moment I expect this to be a rather uneventful earnings announcement.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past year or so, this stock has remained largely in hold territory. During the summer months, the stock did slip down to a sell due to abysmal buying pressure, but has since recovered some ground.
Right now, 3M Co. is fundamentally strong in two areas: cash flow and return on equity. However, the other six fundamental variables, including sales growth, earnings growth and operating margin growth, are all C-rated.
This fundamental mediocrity, coupled with lackluster buying pressure, makes MMM a C-rated stock.
Bottom Line: This stock is currently a hold, but it wouldn’t take much for this stock to be downgraded even further. For now, hold off on buying shares of MMM.
Recommendation: Hold
Sound Off: What do you think about MMM? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook.
