A Brighter Future Ahead for 3M Stock
The industrial conglomerate 3M (NYSE: MMM) saw its shares surge 6% in early morning trading, driven by a solid fourth-quarter earnings report and guidance. Despite mixed end markets, the company’s ongoing transformation efforts are expected to improve long-term growth and near- to medium-term margins.
Two-Pronged Approach to Success
3M’s management is pursuing a two-fold strategy to drive growth. The first part involves restructuring initiatives introduced by former CEO Mike Roman, including spinning off the healthcare business, job cuts, and streamlining operations. The second part focuses on driving top-line growth through targeted research and development, improving operational performance, and deploying capital more effectively, led by current CEO Bill Brown.
Early Signs of Success
The evidence suggests that the Roman restructuring is paying off. Despite modest organic growth of 1.2% in 2024, 3M’s operating margin expanded from 18.6% in 2023 to 21.4% in 2024, resulting in 21% earnings-per-share growth. Furthermore, management’s guidance for 2025 calls for 2% to 3% organic sales growth, with implied operating margin guidance of 22.7% to 23.3%, and free-cash-flow conversion at 100%.
A Compelling Value Stock
Trading at 19 times the midpoint of 2025 guidance, 3M appears to be an excellent value stock for 2025. With its transformation efforts gaining momentum, the company is poised for long-term growth and improved profitability.
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