3M (MMM) is working on a deal to buy Avery Dennison Corp (office division) for $550 million but it has to get around Uncle Sam's concerns first. This would give 3M about 80% of both labels and sticky notes market. This is another great move for 3M! The office and consumer products division of Avery had sales of about $765 million in 2011. The numbers alone make the deal good and bring in more revenue for 3M immediately.
Both 3M and FedEx (FDX) expressed concerns about the near future of the economy going into 2013. According to 3M, the environment has not changed for the good! And long-term 7-8 pct is its revenue growth target and it now views that range as a "stretch target". This is important because both of these companies are looked upon as important gages to how the economy is doing. The warnings come as S&P 500 companies are expected to post a 2 percent contraction in third quarter earnings.
Look at these statistics:
- The debt-to-equity ratio, 0.38, is low and is below the industry average
- Gross profit margin for the company is at 52.90%. It has increased from the same quarter the previous year.
- The net profit margin of 15.50% is above that of the industry average.
- Earnings per share improvement from the most recent quarter was positive.
The company is strong, but it is also guarded. Expecting minimal gains next year it would also be wise to be cautious about continued growth. I believe the stock is still strong but I am not sure it will continue up at the present.
It looks like the stock has come across a very important resistance point established back in mid August. The last four days have not broken through but have been steady in their pursuit. So from the looks of it the stock might be moving sideways or in a trading channel for a bit. The RSI is still showing strength and no bearish tendencies. The last couple attempts to push through resistance have been weaker but that is always the case in consolidation. So not sure if it will push through because I don't see any strength. At the same time, the MACD has given us a very long negative divergence which signifies a slow down in the movement (when it is on its own with no support). There is no negative divergent support in the RSI so I would not consider this a reverse of direction. It looks like a rest before it continues up.
The Options Play
Presently trading at 93.78 I am torn between the stock moving sideways or reversing positions because of its cautious outlook on the economy going into 2013. A channel may range from 94 down to 90.5. The stock presently sits at the top of this channel so I am going to play a move down into the lower end of the trading channel.
- Buy the January 2013 put with a strike of '95.00' (priced at $4.35)
- Sell the January 2013 put with a strike of '92.50' (priced at $3.15)
- Net Debit to Start: $1.40
- Maximum Profit: $1.10
- Maximum Risk: net debit
- Maximum Length of Trade: 4 months
Reasoning behind the Trade
- Stock is slowing & looks like it may consolidate for awhile.
- Bleak outlook in 2013 may also keep the stock sideways for awhile.