3M Company MMM is benefiting from strong demand across most end markets. The company’s portfolio-reshaping actions should drive its growth going forward. Its measures to consistently reward its shareholders are encouraging.
While semiconductor supply-chain constraints in the automotive and consumer electronics end markets are weighing on the Transportation and Electronics segment’s performance, improvement in abrasives, electrical markets, roofing granules, automotive aftermarket and industrial adhesives and tapes businesses is aiding the Safety and Industrial business. Impressive performance of the stationery, office and homecare businesses is aiding the Consumer segment. The company’s Healthcare segment is flourishing on the back of strength in the separation and purification business, owing to strong demand for biopharma filtration solutions for COVID-related vaccines. Improvement in U.S. elective medical procedures and oral care volumes is also aiding the Healthcare segment’s performance.
Strong free cash flow generation supports 3M’s shareholder-friendly policies. In the second quarter, the company generated an adjusted free cash flow of $1 billion with a conversion of 68%. In the first half of 2022, 3M rewarded its shareholders with dividend payments of $1,700 million. The quarterly dividend rate was hiked by 0.7% in February 2022. In 2021, the company paid out dividends worth $3.4 billion and repurchased shares worth $2.2 billion.
3M Company Price and Consensus
3M Company price-consensus-chart | 3M Company Quote
Despite inflationary pressure from high raw materials and logistics costs, pricing actions, restructuring savings and spending discipline are supporting 3M’s margin performance (improved 2.9 percentage points year over year in the second quarter).
The company’s investments in growth, productivity and sustainability should drive its long-term growth. It should also help the company capitalize on growth opportunities in large markets, including automotive, safety, healthcare, electronics, software and home improvement.
3M’s portfolio-reshaping actions are expected to enhance its shareholder value over time. In September 2022, the company completed the divestiture of its food safety business to Neogen. In July 2022, the company entered into an agreement to sell its Neoplast and Neobun brands to Selic Corp. 3M will also divest the manufacturing assets of its Ladlumkaew, Thailand, facility to Selic Corp. The divestitures are expected to be completed in the fourth quarter of 2022. In April 2022, 3M acquired the technology assets of LeanTec. The acquisition has strengthened its ability to deliver a more connected, digital bodyshop solution via its RepairStack Performance Solutions. In March 2022, it sold its floor care products business.
In light of the abovementioned positives, we believe investors should hold on to this Zacks Rank #3 (Hold) stock in their portfolios for now. Gradual easing of supply-chain constraints and increase in industrial production place 3M well for future growth.
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