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3M (MMM) stock price is back. It soared by over 20% on Friday, making it one of the best-performing names on Wall Street as investors cheered its financial results. It rose to a high of $124, its highest point since January 2022, as I had predicted in my last article.
3M strong earnings and guidance
The 3M share price soared after the company published strong results that beat analysts estimates. Its revenue rose by 0.5% on a YoY basis to $6.3 billion. The figure was higher than the expected $5.3 billion.Its earnings per share jumped to $2.17, higher than the median estimate of $1.8. These numbers mean that the company is executing its turnaround well after coming under pressure in the past few years.Its safety and industrial segment rose by mid-single digits, helped by its adhesives business, partially offset by a slight drop of its abrasives. Operating margins rose by 40 basis points.Elsewhere, its transportation and electronics business had an organic growth of 3.3% while its automotive electrification rose by 17%. The consumer segment’s organic growth retreated by 1.4% while operating margin rose to 17.4%. 3M’s management hopes that its business will continue doing well this year. While the organic sales growth is expected to remain intact at 2%, it boosted its operating margin target to between 225 to 275 basis points and its adjusted EPS to between $7 and $7.30. The main catalyst for the 3M stock price was that the new management decided to boost the forward medium-term targets. He did that while pointing to his three priorities, which include driving top-line organic growth, improving operational performance, and deploying capital well.In particular, he noted that the company needed to invest more money on research and development (R&D) since most of its products were aging. He will do that by increasing the R&D spending while ensuring that the company got more from what it spends. Most importantly, the new CEO is working on improving inventories, which are a big issue for the company. He said:
“We have too much inventory at about $4 billion and 102 days at the end of Q2 and yet our service levels are only in the mid-80’s. Our bottoms-up analysis indicates we should be closer to 75 days of inventory or lower, which would imply about a $1 billion cash opportunity over time.”
Moving on from past crises
Therefore, investors believe that 3M is moving on from its recent black swan events. It was forced by the US government to spend more than $12 billion in fines for its forever chemicals, which it uses to manufacture most of its products.Shortly after that, the company reached an agreement to pay $6 billion to 250,000 veterans who were harmed by its earplugs. These are substantial sums of money since 3M is a company valued at over $68 billion today. Therefore, the stock surge is a sign that investors anticipate a new normal in the company. The hope is that its turnaround will resemble that of other companies like General Electric, which has soared in the past few years. Under Lawrence Culp, GE has gone through a big turnaround, with the most important one being his decision to separate it into three companies. Before he came in, there were concerns that the storied company would go bankrupt.Chipotle Mexican Grill is another company that has gone through a stronger turnaround under a new CEO. Before Brian Niccol became CEO, the stock had crashed after a contamination crisis. In his leadership, he changed the procurement process and boosted its online order deliveries.The other company that has gone through a strong turnaround is Rolls-Royce. Under Tufan Erginbilgiç, who became CEO in 2023, the stock has soared, making it one of the best-performing companies in the FTSE 100 index.
3M stock price forecast
MMM chart by TradingViewIn my last article on 3M shares, I noted that they had formed an inverse head and shoulders pattern whose neckline was at $105.60. In price action analysis, this is one of the most bullish patterns in the market. I also pointed to Elliot Wave, which showed that it was in the third phase, which is characterised by having the most gains. The rebound above its neckline happened on Friday after it published strong financial results. It has also risen above the crucial resistance point at $114.74, its highest point in August 2022. The stock formed a golden cross pattern in March and has constantly remained above the 50-day and 200-day moving averages. Therefore, I suspect that the stock will rise for two more days and then resume the bearish trend as it attempts to form a break and retest pattern. This retreat could see it retest the key support at $114.74 and then resume the bullish trend. In the long term, it will rise to $150.More By This Author:Is Vale Stock A Buy Following Mixed Q2 Earnings?
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