Earnings Preview For 3M 3Q

Oct.24.11 | About: 3M Company (MMM)

By Brendan Gilmartin

Overview

3M (NYSE:MMM) is slated to report 3Q 2011 earnings before the bell on Tuesday, October 25. The industrial conglomerate usually reports earnings at 7:30 a.m. EST and will follow with a conference call at 9:00 a.m. 3M is a Dow component and could deliver results that impact the broader market barometers, including the index futures.

Outliers & Strategy

  • 3M typically produces a value for Earnings Per Share (EPS) Excluding Items. This value typically compares with consensus estimates. The same value is represented in the measure Adjusted Earnings Per Share (EPS) and Non-GAAP Earnings Per Share (EPS). If these values are not observed, defer to Earnings Per Share (EPS).
  • Other Key Measures:
    • Revenues: 3M is expected to deliver a solid top-line figure, thanks to strength in emerging markets.
  • Adjusted EPS Guidance (FY2011): Any change in the prior outlook of $6.32 to $6.47 could have market implications. Several names in the industrial space recently reported impressive results that bode well for 3M:
    • United Technologies (NYSE:UTX): 3Q EPS came in above estimates; Outlook increased.
    • General Electric (NYSE:GE): 2Q adjusted EPS was in-line and revenues handily topped estimates.
  • Companies with strong exposure overseas have been tracking well above expectations this quarter. For 3M, emerging markets represent more than 1/3 of 3M’s worldwide sales, and international sales comprise more than 2/3 of the company’s total sales.
  • 3M is expected to earn $1.61 per share for the 3Q (range is $1.52 to $1.72) (Source: Yahoo! Finance). Given the recent run-up off the October lows, look for a number toward the higher end of this range. Revenues are seen rising 13.1% to $7.78 bln.

Recent News

  • 09/13: JP Morgan maintained a Neutral rating and $80 price target on 3M, citing limited upside to margins at current levels. Benzinga.com
  • 08/08: 3M declared a dividend on the company’s common stock of $0.55 per share.

Technical Review

3M shares are well off the 52-week low of $68.63 established on October 4, overcoming both the 20-Day & 50-day SMA. 3M is now at $80 resistance – a key level to watch near-term. In the event of a positive earnings release, 3M has room to run up toward $82.50. Failure to hold the $80-level could drag the shares toward the $76/$78 area. Note that both the upward-sloping Relative Strength Index (RSI) and MACD are indications the momentum is improving. (Chart courtesy of StockCharts.com)

Summary

3M shares are well off the intraday low of $68.63 on October 4 (+17.3%) amid evidence that global economic conditions may improve, as Europe resolves its debt crisis, while emerging markets remain a key growth area. Stronger than expected earnings reports last week from United Technologies and General Electric also bode well. 3M shares are also trading at just 13.7x earnings, a discount to the 5-year average of 15.2x, and a mere 12.1x forward profits, nearly in-line with the projected 5-year growth rate of 11.98%, resulting in a FWD PEG ratio of close to 1.0. These factors, combined with a 2.73% dividend yield suggest 3M is well-positioned coming into the 3Q 2011 earnings release. But with recent hiccups in China and softness in Europe, 3M’s bottom-line EPS figure could be at risk, given its heavy international exposure and recent Dollar strength. Nonetheless, if history holds true, 3M should meet or marginally exceed consensus estimates and reiterate the 2011 EPS outlook. Anything less would be seen as disappointing.

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