3M Briefly Breaks Out After Posting Strong Q2 Results

Quarterly results weren't as bad as feared, but key risks remain

3M Company (MMM) shares briefly rose more than 5% during Thursday's session after the company reported better-than-expected second quarter financial results. Revenue fell 2.6% to $8.17 billion, beating consensus estimates by $70 million, and non-GAAP earnings per share (EPS) came in at $2.20, beating consensus estimates by 13 cents per share. Management also reaffirmed its 2019 guidance for in-line EPS.

Earlier this month, RBC Capital analyst Deane Dray downgraded 3M stock to Sector Perform, saying that the overhang from macro pressure and litigation will continue to weigh on the stock. The analyst saw the company's string of guidance cuts as damaging its reputation as a defensive, high-quality industrial. The litigation related to PFAS chemicals could also worsen as product liability class action lawsuits escalate. By late morning, 3M stock gave up most of its gains from earlier in the day as the market digested the news.

Chart showing the share price performance of 3M Company (MMM)

From a technical standpoint, the stock broke out from trendline resistance to approach the 200-day moving average near $190.00 before giving up most of those gains. The relative strength index (RSI) moved toward overbought levels with a reading of 64.02, but the moving average convergence divergence (MACD) crossed above the zero line. These indicators suggest that the stock could see some consolidation before extending its move higher dating back to early June.

Traders should watch for some consolidation above trendline resistance at $180.00 over the coming sessions. If the stock breaks down from these levels, traders could see a move toward the 50-day moving average at $169.73. If the stock breaks out from these levels, traders could see a move to retest the 200-day moving average at $190.07. A further breakout from those levels could lead the stock to close the gap and retest highs.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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