Recently, 3M Company (MMM) announced its third quarter results, reporting sales growth of 5.6 % year over year to $7.9 billion. Growth in the industrial segment was the primary reason for this increment in total sales. Going forward, 3M Company expects to grow this segment with its contracts from U.S. military services. The company also expects to grow its healthcare segment in Asia Pacific and Latin America.
Expanding with contracts
3M Company acquired Ceradyne last year, which became part of 3M Company's industrial business segment. Ceradyne is a wholly owned subsidiary of 3M Company that manufactures advanced ceramic products, used in automobiles, oil and gas, and defense devices. In the defense sector, these ceramic products are used for making various accessories like helmets and body armor.
On September 10, 2013, Ceradyne received an order of $80 million from the U.S. government to supply around 77,000 "enhanced helmets." These helmets provide better protection than all the earlier helmets used by the army. The U.S. Marine Corps and Army tested and proved the helmet's superior quality. Ceradyne has already begun production of these enhanced helmets and expects to deliver the helmets by this fall.
Besides this, on September16, 2013, Ceradyne also received an order of $151 million for supplying body armor to U.S. military services. This armor is expected to be delivered by July 2015. These contracts from the U.S. military services are expected to boost Ceradyne, which in turn will benefit the industrial business of 3M Company.
In the third quarter of fiscal year 2013, industrial business accounted for 34.17% of the company's total revenue, which registered growth of 8.6% year over year. Ceradyne was responsible for 4.1% growth in 3M Company's industrial business revenue. With the above discussed contracts, we expect Ceradyne's contribution to the growth of its industrial business' revenue will continue in the next fiscal year.
3M Company's competitors in the industrial segment are E. I. du Pont de Nemours (DD) and Honeywell (HON). DuPont is betting on a major acquisition in its agriculture business and is backed by stronger valuation. We discussed these factors in depth in our article on DuPont. Its long dividend history, as depicted in the chart shown below, makes its stock even more attractive. DuPont announced on October 24, 2013, to pay a dividend of $0.45 per share, a growth of 4.65% from its value last year. This quarterly dividend is expected to be paid to shareholders on December 13, 2013.
The periodical dividend paid by Honeywell, shown in the chart below, also makes its stock attractive. On October 22, 2013, Honeywell announced a quarterly dividend of $0.45 per share to be paid on December 10, 2013, which is an increase of 9.75% year over year. Besides the dividend, Honeywell is well positioned to grow with its acquisition of Intermec, which we discussed in our article on Honeywell. These factors make Honeywell an attractive investment opportunity.
3M Company declared a quarterly dividend of $0.635 per share, which was paid to the shareholders on September 12, 2013. This quarterly dividend is growth of 8.47% from the previous year's dividend of $0.59 per share. So, 3M Company is also fetching investor's attention with its higher dividend distribution.
Asia Pacific and Latin America constitute around 40% of 3M Company's worldwide revenue. The company considers these regions as an attractive revenue generating opportunity with respect to its healthcare products.
According to an official of 3M Company, in the third quarter of fiscal year 2013, "We generated positive organic sales growth in every division and in every geographic region within Healthcare."
Under its healthcare segment, the company supplies skin infection prevention products, dental products and surgical products. To strengthen its healthcare segment further, the company increased its portfolio of respirators and surgical masks on October 4, 2013. These products provide the protection of a respirator with the fluid resistance of a surgical mask. The new respirator increases surface area, which eases breathing. The FDA has also approved these new products.
In the third quarter of 2013, the organic sales of 3M Company's healthcare segment increased by 9% in Asia Pacific and 11% in Latin America year over year. Going forward, we believe that, with rising standard of living and disposable incomes of the residents in these regions, the healthcare segment's revenue contribution from these markets will continue to grow in the future. Moreover, with the addition of new products in its healthcare segment, this revenue contribution will get an additional boost.
3M Company's stock valuation parameters make it a worthwhile investment opportunity. The trailing twelve months price to earnings, or PE, ratio of the company is 19.5, significantly higher than the forward PE ratio of 16.83, implying that the earnings of the company will increase going forward. 3M Company also has a lower price to book, or PB, ratio, which is 4.79 compared to the industry's PB ratio of 11.0. The return on equity, or ROE, of 3M Company is 25.2%, higher than the industry's ROE of 22.6%. All these valuation parameters indicate that 3M Company's stock is attractive compared to the industry's figure.
3M Company's wholly owned subsidiary Ceradyne is expected to boost its revenue with contracts from U.S. military services. In turn, these contracts are expected to boost 3M Company's industrial business, its highest revenue generating segment. 3M Company is also betting on growth prospects in its healthcare segment from Asia Pacific and Latin America. Considering these factors, we would advise investors to add this attractive stock to their portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Fusion Research is a team of equity analysts. This article was written by Shweta Dubey, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.