3M Rises 23.4% in 6 Months: Time to Buy or Hold the Stock?

3M Company’s MMM shares have gained 23.4% over the past six months, outperforming the S&P 500’s growth of 10.4% and the Zacks Diversified Operations industry’s decline of 9.4%. The diversified technology company has also outperformed industry players like Honeywell International Inc. HON and Federal Signal Corporation FSS, which have returned 12% and 2.1%, respectively, over the same time frame.MMM Stock’s Six-Month Price PerformanceImage Source: Zacks Investment ResearchClosing at $129.79 in the last trading session, the stock is trading below its 52-week high of $141.34 but significantly higher than its 52-week low of $75.65. The company’s impressive performance can be largely attributed to its strong foothold and improving conditions in the transportation, industrial adhesives, roofing granules and electrical markets.Factors Favoring the Company3M’s third-quarter 2024 results indicated decent year-over-year growth, with adjusted revenues rising 1.5% to $6.1 billion, driven by solid momentum in the Safety and Industrial segment. Solid momentum in the industrial adhesives and tapes end markets, driven by an increase in the sales of bonding solutions for electronic devices, has been driving the segment’s performance. The segment’s organic sales improved 1% year over year in the third quarter.The company’s Transportation and Electronics segment has also been benefiting from strength in the commercial branding and transportation end markets. Solid electronics demand, backed by an increase in production volume, by electronics original equipment manufacturer (OEM) customers is proving beneficial for the segment. However, weakness in the automotive electrification market due to a decline in automotive OEM build rates remains a concern. The segment’s adjusted organic revenues grew 2% in the third quarter. Backed by strength across its businesses, the company provided a stable outlook. For 2024, it expects total adjusted organic sales to grow approximately 1% on a year-over-year basis.The company has been undertaking restructuring actions that are intended to lower operational costs and boost margins and cash flow in the long term. These include streamlining the geographic footprint, simplifying the supply chain and optimizing manufacturing roles to align with production volumes. In the third quarter, these actions, together with strong organic volume and productivity, raised 3M’s adjusted operating margin by 140 basis points year over year to 23%.3M is committed to rewarding its shareholders through dividend payments and share buybacks. In the first nine months of 2024, it paid dividends worth $1.6 billion and repurchased shares for $1.1 billion. Exiting the third quarter, the company had $3.1 billion remaining under the share repurchase program. In February 2024, it hiked its quarterly dividend by 1%.Better-Than-Industry Returns of MMM3M’s trailing 12-month return on equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 104.7%, much higher than the industry’s 31.2%. This reflects the company’s efficient usage of shareholder funds.Image Source: Zacks Investment ResearchEstimate Revision TrendEarnings estimates for 2024 have increased 0.7% to $7.27 per share over the past 60 days, while the same for 2025 has inched up 0.4% to $7.87. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Image Source: Zacks Investment ResearchA Few Near-Term Concerns Prevail3M has been grappling with persistent weakness in the Consumer segment due to soft consumer discretionary spending. The segment’s revenues declined 1.2% in the third quarter, following a 2.4% decrease in the previous quarter. There was particular weakness in the packaging & expression, home & auto care and consumer safety and well-being businesses. It expects consumer retail discretionary spending on hardline goods to remain muted for the rest of the year, which is likely to hurt its overall performance.MMM’s high debt level remains a concern for its profitability. Exiting third-quarter 2024, the company’s long-term debt was high at $11.3 billion. Its short-term borrowings and current portion of long-term debt totaled $1.9 billion. Also, interest expenses in the first nine months of 2024 were $939 million, up 64% on a year-over-year basis. It’s worth noting that 3M’s long-term debt-to-capital ratio is 70.7%, much higher than the industry’s 26.5%.The company has also been subject to several litigations, including earplug lawsuits. It has committed substantial funds to resolve these disputes as ongoing litigation might lead to additional expenses.Stretched Valuation Remains an Overhang for 3MIn terms of valuation, MMM’s forward 12-month price-to-earnings (P/E) is 16.64X, a premium to its industry average of 15.05X. This indicates that investors will be paying a higher price than the company's expected earnings growth compared with its peers. Also, the stock is overvalued compared with its peer, Griffon Corporation GFF, which is trading at 12.99X.Image Source: Zacks Investment ResearchSumming UpDespite 3M’s several upsides and robust share price returns, the near-term challenges, such as weakness in the retail market, high debt level and premium valuation, are limiting this Zacks Rank #3 (Hold) company’s prospects. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains and provide a better entry point.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Honeywell International Inc. (HON): Free Stock Analysis Report 3M Company (MMM): Free Stock Analysis Report Federal Signal Corporation (FSS): Free Stock Analysis Report Griffon Corporation (GFF): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks