Earlier this year, 3M (NYSE:MMM) CEO Inge Thulin stunned Wall Street when the company reported its first earnings miss in nearly two years and slashed its 2013 earnings outlook as the maker of Post-It notes, Scotch tape and Ace bandages, faced a “low-growth economic environment.”

Thulin, who has headed the St. Paul, Minn. company since February 2012, is now changing his tune after the company reported better-than-expected results.  He raised the company’s earnings outlook to $6.65 per share to $6.75 per share, compared with an earlier forecast of $6.60 per share to $6.85 per share.  Organic growth is expected to be 3% to 4%, lower than the 4% to 6% target forecast by 3M a year ago.  Nonetheless, that’s better than many of its peers.

“All business groups generated positive organic sales growth and operating margins above 20%,” he said in the earnings release. “At the same time, we further strengthened the company through increased investments in innovation, commercialization and manufacturing.”

Wall Street doesn’t appear to be terribly impressed with 3M’s results even though they were pretty solid.  Shares of the St. Paul, Minn. were up slightly in Thursday's trading.  They have surged more than 30% this year, outperforming rivals such as General Electric (NYSE:GE), Illinois Tool Works (NYSE:ITW) and Danaher (NYSE:DHR).  

The strong performance should continue for the foreseeable future. Industrial sales surged up 8.6% $2.7 billion fueled by gains across major georgraphie including double-digit increases in Latin America and Canada.   Foreign sales also bolstered 3M’s Electronics and Energy, Safety and Graphics, Health Care,  and Consumer divisions even when growth in the U.S. was lackluster.

Shares of 3M are trading at a price-to-earnings multiple of 19.3, slightly ahead of Danaher’s 20, and Honeywell’s (NYSE:HON) 21.5. Revenue this year at 3M is forecast to grow 3.4% this year, and 5.4% next year.  That’s in-line with Danaher, which is expected to post gains of 4.3% and 5.4% during that same time period, and Honeywell, which is expected to gain 3.2 % and 5.8 % over the next two years.

Shares of 3M are trading ahead of its $122.60 average 52-week price target.  Analysts at Jefferies think the shares could hit $140, which implies a 13% upside and is the highest forecast on Wall Street. Honeywell is trading 5% under its average 52-week target of $91.48 and  Danaher is trading 6% under its average 52-week price target of $76.55.

3M is exposed to a wider variety of customers than either Honeywell or Danaher, which even in a slow growth economy is a plus. It should easily hit its most optimistic target. Like Honeywell, 3M counts aerospace and defense contractors among its customers providing products  such as coatings, sealants, fasteners and binders. 3M, like Danaher, also does a sizeable business with industrial customers thanks to products such as compressed natural gas tanks. The company also is entrenched with consumers because of a wide variety of products such as Thinsulate insulation which is used in outerwear, bedding and acoustics.

The Bottom Line

Though manufacturing companies talk a good game about innovation, 3M  has track record that shows it can “talk the talk” and “walk the walk”  It continues to invest in innovation and  is building a new state-of-the art research facility at its headquarters in St. Paul. The company is focusing on so-called disruptive technologies. Investors can be assured that many of these projects will pay off.  That’s why the time to buy the stock is now.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  2. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  3. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  4. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  5. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  6. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  7. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  8. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  9. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  10. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!