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By: Brendan Gilmartin, VP REsearch And Content

3M (NYSE:MMM) is scheduled to report 1Q 2013 earnings before the opening bell on Thursday, April 25. The actual results are typically reported at 7:30 a.m. Eastern and will follow with a conference call at 8:00 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 And Strategy

  • The current consensus for EPS is $1.65, the mid-point of the projected range ($1.60 to $1.70) (Source: Yahoo Finance). Given the recent run-up toward all-time highs over the past several months, look for a figure at the upper end of the Street's guidance to push the shares higher. A tepid earnings release could drag the shares sharply lower.
  • Revenues for the 1Q 2013 period are seen rising 4.3% to $7.81 billion (Source: Yahoo Finance), with high forecasts on the Street running as high as $7.90 bln. Last October, 3M reported a revenue figure for the 3Q period that fell about 3.7% shy of consensus, triggered a steep move lower in the equity and the index futures (S&P E-Minis and Dow E-Minis).
  • Keep an eye out for any changes to the outlook for 2013. Back in January, 3M indicated it anticipates 2013 earnings to be in the range of $6.70 to $6.95 per share. Given the recent run-up, look for 3M to possibly boost this guidance. Anything less could be seen as a disappointment.
  • 3M shares are up more than 23% off the mid-November lows and now trade for 16.8x trailing earnings, a premium to the 5-year average of 14.8x and 2.5x sales, also above historical multiples.
  • The options market is currently pricing in a 3% move off earnings. Based on the current price, that would imply a post earnings price of about $102.50 to $109 (coinciding with the recent all-time high).

Recent News

  • 03/21: Goldman Sachs resumed coverage on 3M with a Neutral rating according to StreetInsider.com. The firm noted that while 3M boasts solid innovation, a cautious near-term outlook and defensive nature of 3M's businesses warrant a defensive stance.
  • 03/18: Morgan Stanley raised its price target on 3M from $110 to $113, according to a report on Benzinga.com, based on valuation, strong balance sheet and earnings.
  • 02/05: 3M raised the quarterly dividend 8% to $0.635 per share for the first quarter of 2013 and authorized the repurchase of up to $7.5 billion in outstanding common stock. The shares are currently yielding 2.40%.

Technical Review

3M shares have been breaking out over recent months, climbing more than 23% off the November lows, en route to a fresh all-time high of $108.72 on April 11. Since then, however, the enthusiasm has tapered off, with the shares retreating toward the $105-level, nearly coinciding with the 50-Day SMA. From here, there is downside risk to $104, followed by $102 should earnings miss consensus estimates. Conversely, resistance is at the aforementioned high near $109. (Chart courtesy of StockCharts.com)

(click to enlarge)

Summary

3M shares have been breaking out over recent months, benefiting from an improving global economic backdrop, a rich dividend yield, share repurchases, expanding product lines and a strong balance sheet. But with few catalysts in sight, evidence of weakness in China, and currency headwinds, the shares have leveled off in recent sessions. With a strong quarter largely priced in, 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.

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Source: 3M Shares Near All-Time Highs Ahead Of Earnings Despite Headwinds