Consumer Products

The Bullish and Bearish Case for 3M in 2015

The bull market is now nearing six years old. In 2014 the gain in the Dow Jones Industrial Average (DJIA) was 7.5% and the gain in the S&P 500 Index was 11.4%. While those index performances do not account for individual stock dividends, 3M Co. (NYSE: MMM) closed out the year 2014 at $164.32, for a gain of 20%, including its dividend adjustments.

24/7 Wall St. has offered up an evaluation with a bullish and bearish case to evaluate both sides of the coin to see what lies ahead for 3M and the other Dow stocks in 2015 and beyond. One key consideration for the year ahead is that 3M was recently among the top dividend and buybacks that were too big to ignore.

Shares traded between $123.61 and $168.17 in 2014, and the consensus analyst price target of $164.21 would imply upside of basically nothing in 2015. Still, there is the 20% dividend hike announced in December to consider, and this takes the new yield for 2015 up to 2.5%.

3M has a market cap near $105 billion. Interestingly enough, 3M outperformed both the DJIA and the S&P 500 index in 2014 without having any substantial earnings blowouts.

After a dividend-adjusted performance of 20.0% in 2014, 3M’s total upside this year, with the dividend included, is expected to be about 2.5%.

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One positive view for 3M was issued right before Christmas by Merrill Lynch. The analysts there gave a street-high analyst price target of $180 for 3M. That is nearly 10% higher than the previous street-high target. 3M also had the best earnings report of all conglomerates last quarter, and it was one of the best-performing DJIA stocks since that V-bottom recovery that took place in October and November of 2014.

A downside view of 3M is that its lowest analyst target price is only $149. If that is correct, then 3M would have nearly 10% downside for 2015, before factoring in its dividends. RBC Capital Markets even recently warned that 3M’s valuations are simply too high. Still, when we ran our bullish and bearish review for the DJIA and 3M a year ago, analysts were calling for 3M to lose more than 2% in 2014 — yet it rose 20%. Maybe analysts are still too cautious, and maybe 3M’s large stock buyback plan will help that along as well.

It turns out that 3M trades at 19.5 times expected 2015 earnings per share, and it trades at 21 times trailing earnings. That may be just too high for a conglomerate. At least 3M has been aggressive on its dividends with a new quarterly payout of $1.025. That dividend was down at $0.55 per quarter in 2011.

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