Investors in 3M (NYSE: MMM) hoped the industrial giant’s restructuring efforts would show up in its numbers for the fourth quarter and outlook for 2024. However, 3M continues to remind investors about the many problems it is dogged with, particularly legal issues that have weighed heavily on the company’s growth and prospects in recent years. That explains why 3M stock crashed by double digits on Tuesday after earnings.
To be fair, 3M still beat its earnings guidance in 2023 and exited the year with strong cash flows. Management now believes simplifying the organization structure, finalizing legal settlements, and completing strategic moves like spinning off its healthcare business should help 3M deliver a “successful” 2024.
Key 3M numbers you must know
3M’s sales fell 0.8% year over year in Q4 and were down 4.5% in 2023. Organic sales fell 3% year over year in Q4. End markets played out as expected, with softness lingering in consumer retail and electronics markets. China also continues to be a weak spot for 3M.
3M’s adjusted earnings per share (EPS) in Q4, however, rose 11% year over year, driven by restructuring and a lower-than-expected tax rate. For the full year, though, 3M’s adjusted EPS fell roughly 6.5% to $9.24 a share. 3M ended 2023 with an adjusted free cash flow of $6.3 billion, versus its original guidance of $4.2 billion to $5 billion.
Buy, sell, or hold 3M stock?
3M expects to earn adjusted EPS of only $9.35 to $9.75 per share. That’s below consensus estimates and does not reflect the impact of 3M’s upcoming healthcare spinoff and potential lawsuit settlements. Management, however, believes there are “significant” opportunities to expand margins and cash flows in 2024 as it continues with its restructuring efforts, identifies low-return products and businesses to exit, invests in newer markets, and focuses on reducing legal risks.
There’s something investors must understand here: There are too many factors at play when it comes to 3M, which makes it harder to build conviction in the stock. To give you an example, 3M’s restructuring should largely be complete by the end of 2024, which should save it costs and boost margins. At the same time, divestiture of its healthcare business will mean a loss of earnings and cash flows for the company.
Here’s what that means: 3M’s stock is trading significantly below its five-year average price-to-sales and price-to-cash flow and is offering a dividend yield of 5.6%, which is undeniably a value buy for long-term investors. The keyword here is long term, though: You may not want to expect much from 3M stock in the near term as the company navigates challenges. Instead, base your investing thesis on what management can do in the long term to revive the company.
Should you invest $1,000 in 3M right now?
Before you buy stock in 3M, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and 3M wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of January 22, 2024
Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.
3M Stock Crashes Again: Buy, Sell, or Hold the Stock? was originally published by The Motley Fool
