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By: Brendan Gilmartin

3M (NYSE:MMM) is scheduled to report 4Q 2012 earnings before the opening bell on Thursday, January 24. The actual results are typically reported at 7:30 a.m. Eastern and will follow with a conference call at 9:00 a.m. 3M is likely to garner close scrutiny after recently hitting all-time highs, thanks in part to recent Dollar weakness. 3M is also a member of the Dow Jones Industrial Average and widely considered an economic bellwether with broad influence and could therefore impact the broader indices.

Outliers & Strategy

Earnings Per Share: The current consensus is $1.41 per share, the mid-point of the projected range ($1.36 to $1.45) (Source: Yahoo! Finance). Given the recent run-up toward all-time highs over the past several months, look for a figure toward the high end of the Street's guidance to push the shares higher. A tepid earnings release could drag the shares back toward $95.

Revenues for the 4Q 2012 period are seen rising 1.3% to $7.18 billion (Source: Yahoo! Finance), with high forecasts on the Street running as high as $7.27 bln.

Keep an eye out for any changes to the outlook for 2013. Back in December, 3M indicated it anticipates 2013 earnings to be in the range of $6.70 to $6.95 per share. Given the recent run-up and increased visibility several weeks into the new year, look for 3M to possibly boost this guidance. Last quarter, 3M shares fell sharply after lowering its full year outlook, citing "economic realities."

3M shares are up more than 15% off the mid-November lows and now trade for 14.5x forward earnings, a slight premium to the market, and 2.35x sales, above the 5-year average of 2.1x.

Recent News

01/11: JP Morgan Chase downgraded 3M to Underweight from Neutral, citing limited upside, according to a post on Benzinga.com. The firm also maintained a price target of $97.00.

12/12: 3M affirmed its 2012 earnings-per-share target of $6.27 to $6.35 and offered up the following guidance for 2013:

  • Earnings Per Share (EPS): $6.70 to $6.95.
  • Organic local-currency sales growth of 2% - 5%.
  • Free cash flow conversion in the range of 90% to 100%.


11/12: 3M declared a dividend on the company's common stock of $0.59 per share for the fourth quarter. The shares are now yielding 2.38%.

Technical Review

3M shares have been breaking out over recent months, climbing more than 15% off the November lows, en route to a fresh all-time high. Following the advance, the Relative Strength Index is now at 76.79, well above the 70-threshold that signifies overbought conditions and a harbinger for a possible reversal. Should the rally fade off a tepid earnings release, look for initial support near $95.00, with downside risk to the 50-Day SMA near $92.50. (Chart courtesy of StockCharts.com)

Summary

3M shares have been breaking out over recent weeks, benefiting from an improving global economic backdrop, current tailwinds, a rich dividend yield, and solid outlook for the balance of the year. But with few catalysts in sight, technical readings pointed toward an overbought scenario, and valuation and margins a bit stretched, the bar is set pretty high ahead of Thursday's earnings release. With the 4Q earnings largely priced in (co. reaffirmed FY2012 earnings back in mid-December), much of the focus will center on the outlook for the balance of the year. Should 3M reaffirm this outlook, it could prove to be a "sell-the-news" scenario with the shares at all-time highs and within earshot of the century mark.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: 3M Showing Overbought Readings Ahead Of Q4 Earnings On Thursday