Even though 3M (NYSE:MMM) is a gigantic company that’s been around for a long time, its strategy of cost cuts and product price increases may have left a bad impression this year. Yet, 3M needed to take strong measures to combat the impact of supply-chain disruptions and persistently-high inflation. Thus, in light of 3M’s surprisingly strong financial results, I am bullish on MMM stock.
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3M is a manufacturing giant that’s headquartered in Minnesota. The company’s product categories include electrical, ceramics, packing, and health/protective gear, as well as stationery products and air-quality solutions.
Sure, 3M isn’t a “Magnificent Seven” company or a darling of the stock market this year. Nevertheless, passive income investors should take a look at 3M stock while it’s still cheap.
3M’s Obstacles and Opportunities
To be fair and balanced, I must acknowledge that 3M is still sustaining the financial impact of legal issues. For instance, this past summer, 3M agreed to pay $10.3 billion to settle claims made by a number of U.S. public water systems. Allegedly, some of 3M’s chemicals had caused significant water pollution.
Then, in August, 3M “agreed to pay $6 billion to resolve hundreds of thousands of lawsuits alleging it supplied defective earplugs” to U.S. combat troops, according to a Bloomberg report. The company acknowledged these settlements in its third-quarter 2023 press release.
It’s important to be aware of 3M’s legal issues, but there’s no need to abandon MMM stock like investors did this year. 3M shares have lost significant value in 2023 so far, but this creates a buy-the-dip opportunity for value seekers.
Speaking of value, 3M’s non-GAAP-measured trailing 12-month price-to-earnings (P/E) ratio looks enticing at just 9.9x. Meanwhile, the sector median P/E ratio is 15.7x.
Furthermore, passive income investors should note that 3M offers a delightful annual dividend yield of 6.7%. In comparison, the industrial goods sector’s average dividend yield is 1.64%.
3M’s Tough Choices Lead to Positive Results
It’s funny how corporations will sometimes use soft language to express harsh realities. In 3M’s case, the company referred to “restructuring actions” (firing people) and “proactive spending discipline” (again, firing people to save money) in its third-quarter press release.
As it turned out, 3M’s “restructuring” involved thousands of layoffs, including a round of 6,000 job cuts. You won’t hear much about that in 3M’s quarterly press release, but perhaps these painful workforce reductions were necessary in the long run.
Speaking of painful things, MMM also responded to high inflation by raising its product prices. As you might expect, the company found a way to put a positive spin on this. During a call with analysts, 3M CEO Monish Patolawala declared, “In the short run, the company has been able to manage inflation through price. And if needed, we’ll continue doing that.”
That’s not fun for the consumers, but again, it’s a tough choice that may have been necessary for 3M. Indeed, it’s hard to argue with the numbers, as 3M managed to pull off a pretty decent set of results for 2023’s third quarter.
To sum it up, 3M’s $8.3 billion in revenue beat the consensus estimate by $280 million. Moreover, 3M reported earnings of $2.68 per share, handily outpacing the Street’s forecast of $2.36 per share.
So, maybe those painful strategies are starting to pay off. Looking ahead, analysts expect 3M to earn $2.42 per share in the fourth quarter. That seems attainable since 3M earned more than that in the third quarter.
Is 3M Stock a Buy, According to Analysts?
On TipRanks, MMM comes in as a Hold based on 12 Holds and two Sell ratings assigned by analysts in the past three months. The average 3M stock price target is $110.14, implying 23.1% upside potential.
Conclusion: Should You Consider 3M Stock?
Hardly anyone is happy when a company lays off workers and raises its products’ prices. However, 3M’s financial results seem to have benefited from these tough measures in Q3 and may continue to benefit in Q4.
I’m not saying that 3M is problem-free, and investors should keep tabs on the company’s legal issues. That said, I expect the market to finally start to favor 3M in 2023 instead of over-focusing on technology companies. Consequently, MMM stock looks like a potential winner, and passive income collectors should definitely consider it now.
