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.


Tickers in this Article: MMM, GE, HON, DHR, ITW

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