There is a perfect storm surrounding the company and its stock. The company received a boost from being a supplier of essential materials.
MarketBeat.com - MarketBeat The halo is no longer around. 3M is being sued for allegedly causing hearing damage for over 230,000 veterans by selling them ear plugs. The case could take a long time to be resolved.
Uncertainty is bad for the markets. A worst-case scenario of over $230 billion in damages hangs over the company.
The company has delivered less revenue and earnings in the last two quarters. As the economy slows, some analysts think the trend will get worse.
I will give you some perspective from thoughts that have been rolling around in my head as I try to understand MMM stock.
There are bearish cases about the lack of growth in 3M. Revenue has been stagnant for a long time. That is an expectation when buying a stock.
What you don't know is what happened to the stock over the last decade. M MM stock was trading under $100 at the end of the year. Revenue growth wouldn't suggest that growth would have been possible. At one point, the stock had a price-to- earnings ratio of over 30x. It was almost double its historical average.
If you were buying MMM stock at $250 a share, you would be buying it at a perfect price. If you think of 3M as a growth stock, you will be disappointed.
It isn't a growth stock According to the current P/E ratio, the stock is being overvalued.
MMM stock is attractive to income investors due to its dividends. 3M has increased its dividends for 64 years in a row. I don't think the current situation will continue.
Once we know what the company's ultimate responsibility will be in the litigation, my certainty changes. The company will have to cut the dividend if it becomes responsible for more than $200 billion in debt.
Over the years, short interest on MMM stock has grown. The stock has a short interest ratio of 18%. The stock price is down 20% in the 30 days that ended in September.
It is difficult math that adds uncertainty to the stock. I don't have a lot of money riding on uncertainty in my football lineup. I wouldn't be able to take a new position in MMM stock in the short term. There isn't any reason to guess where the stock is headed. What if you are a current investor? There is a different question brought up by that.
Long-term investors have to ask that. The current stock price is justified by the expected drop in earnings. Since the last earnings report, analysts have lowered their price targets.
All of those price targets are higher than the stock price at the time. According to the analysts tracked by MarketBeat, there is a consensus price target on the stock.
3M is streamlining the company by cutting jobs and other things. For companies that are predicting a recession, this is normal. As the company looks to bolster its cash reserves due to ongoing litigation, I think there will be modest gains to the dividends.
The news could be bad for 3M. 3M is providing bucket loads of uncertainty, which is worse for investors. They provide an appealing dividend for current investors. It's a topic for another day, as to whether those investors could replicate that with other stocks or buy an exchange traded fund.
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