The stock price of 3M (MMM), is now back. Investors praised its financial performance, which boosted the stock price by more than 20%. As I predicted in my previous article, it rose to $124, the highest level since January 2022.
Earnings and Guidance for 3M are strong
After the publication of strong results, which exceeded analysts’ expectations, 3M shares soared. The company’s revenues increased by 0.5% YoY to reach $6.3 billion. This figure exceeded the $5.3 billion expected.
The company’s profit per share increased to $2.17 compared with the average estimate of $1.8. The company has done a good job of turning around its fortunes after being under pressure for the last few years.
The safety and industrial segments grew by low single digits. This was aided by the adhesives segment, which is partially offset by a small drop in abrasives. Operating margins increased by 40 basis point.
The company’s transportation and electronic business grew organically by 3.3%, while automotive electrification grew 17%. Organic growth in the consumer segment fell by 1.4%, while operating margin increased to 17.4%.
The management of 3M hopes to continue its good business this year. The organic growth rate is set to stay at 2%. However, the operating margin goal was raised to between 225 and 275 basis point and adjusted earnings per share to $7 to $7.30.
It was the decision of the new management to increase the medium-term forward targets that triggered the price rise for 3M. The new management emphasized his three main priorities: driving organic top-line growth, improving the operational performance and well-deploying capital.
He noted, in particular, that most of the products were getting older and needed more investment. This will be done by a combination of increasing R&D expenditures and ensuring the company gets more for its money.
The new CEO will work to improve inventories. This is a major issue for his company. He stated:
Our service levels at mid-80s are a result of too much stock. We have about $4 billion in inventory and it’s 102 days by the end Q2. According to our bottom-up analysis, we should have inventory of 75 days or less. This would mean a cash flow opportunity worth about $1 billion over time.
Resolving past crises
Investors believe 3M has moved on since its black swan event. The US government forced it to pay more than 12 billion dollars in fines to 3M for forever chemicals that are used to make most of their products.
The company agreed to compensate 250,000 vets who had been injured by the earplugs. 3M, a company worth over $68 billion in today’s market value, is responsible for these large sums.
The stock price surge indicates that investors are anticipating a change in company culture. It is hoped that the turnaround of General Electric will be similar to other companies that have soared over the last few years.
Lawrence Culp has led GE through a major turnaround. The most significant decision was his separation of the company into three separate companies. There were fears that the legendary company might go bankrupt before he arrived.
Chipotle Mexican Grill has also experienced a greater turnaround since the arrival of a new CEO. Brian Niccol was appointed CEO after the company’s stock fell following a contamination scandal. Under his leadership, Brian Niccol changed the procurement processes and increased online orders.
Rolls-Royce is another company which has experienced a significant turnaround. Tufan Erginbilgic became CEO of Rolls-Royce in 2023. Since then, its stock price has soared. It is now one of the top performing companies on the FTSE 100.
Stock price Forecast for 3M
TradingView MMM Chart
In my previous article, I mentioned that 3M’s shares had formed a reverse head-and-shoulders pattern with a neckline of $105.60. This is the strongest pattern in price action analysis.
The Elliot Wave was also highlighted, showing that it is in its third phase. This stage has the highest gains.
It was Friday that it regained its position above the neckline after announcing strong financial results. The company has also moved above the critical resistance level of $114.74 – its high point from August 2022.
In March, the stock displayed a cross-golden pattern and has consistently remained higher than both 50-days and 200-days moving averages.
So, I believe that it will continue to rise in price for another two days before resuming its bearish trend. It is attempting to create a pattern of break-and-retest. It could retest its key support of $114.74, and resume the bullish movement. Long-term, the price will reach $150.
The post My 3M Stock Price Forecast was Correct: Now What? This post may be updated as new information unfolds
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