St. Paul, Minn.-based multinational conglomerate 3M Company’s (MMM) current dividend yields 3.54%. It has raised its dividend for 63 consecutive years. And the company’s fourth-quarter 2021 revenues and adjusted EPS beat the Street’s estimates by 3.6% and 14.4%, respectively.

But the company’s fourth-quarter numbers compared poorly with its year-ago quarter and disappointed investors. MMM also agreed with Neogen Corporation (NEOG) to separate its food safety business and simultaneously combine it with NEOG to be tax efficient.

MMM stock has declined 5.7% in price over the past month and 15.4% over the past six months to close yesterday’s trading session at $167.43. In addition, it is currently trading 19.9% below its 52-week high of $208.95, which it hit on May 10, 2021. Moreover, ongoing labor shortages, supply chain disruption, and rising raw material costs make the company’s near-term prospects uncertain.

Here is what could shape MMM’s performance in the upcoming months:

High Profitability

In terms of trailing-12-month net income margin, MMM’s 16.75% is 161.8% higher than the 6.40 industry average. And its 13.33% trailing-12-month levered FCF margin is 152% higher than the 5.29% industry average. Furthermore, the stock’s 42.32%, 14.64%, and 12.58% respective trailing-12-month ROCE, ROTC, and ROTA are higher than the 13.58%, 6.62%, and 5.12% industry averages.

Disappointing Financials

MMM’s net sales increased 0.3% year-over-year to $8.61 billion in the fourth quarter, ended Dec. 31, 2021. However, its operating income declined 12.6% year-over-year to $1.62 billion. Also, its net income came in at $1.34 billion, down 4.7% year-over-year. The company’s EPS declined 4.1% year-over-year to $2.31.

Stretched Valuation

In terms of forward P/B, MMM’s 5.79x is 108.3% higher than the 2.78x industry average. Its 2.61x forward P/S is 66.4% higher than the 1.57x industry average. And the stock’s forward non-GAAP PEG and EV/S of 2.41x and 2.94x, respectively, are higher than the 1.48x and 1.88x industry averages.

POWR Ratings Don’t Indicate Enough Upside

MMM has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MMM has a C grade for Value, which is in sync with its higher-than-industry valuation ratios.

MMM also has a D grade for Growth and Sentiment. This is justified because analysts expect its EPS to decline 11.2% year-over-year to $2.46 for the quarter ending March 31, 2022.

MMM is ranked #49 of 79 stocks in the Industrial – Machinery industry. Click here to access MMM’s ratings for Momentum, Stability, and Quality as well.

Bottom Line

MMM is currently trading below its 50-day and 200-day moving averages of $175.40 and $188.49, respectively, indicating a downtrend. Therefore, MMM looks overvalued at its current price level, and it could be wise to wait for a better entry point in the stock.

How Does 3M Company (MMM) Stack Up Against its Peers?

While MMM has an overall POWR Rating of C, one might want to consider investing in Industrial – Machinery stocks with an A (Strong Buy) rating, such as Tennant Company (TNC), GEA Group Aktiengesellschaft (GEAGY), and Curtiss-Wright Corporation (CW).

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MMM shares were trading at $166.78 per share on Wednesday afternoon, down $0.65 (-0.39%). Year-to-date, MMM has declined -6.11%, versus a -4.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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