3M Company (MMM) concluded 2024 on a high note, exceeding market expectations with its fourth-quarter results. The company reported adjusted revenue of $5.81 billion and adjusted earnings per share of $1.68, surpassing consensus estimates of $5.78 billion and $1.66, respectively. This positive performance, coupled with a promising outlook for 2025, propelled the company’s stock price upward. The 2025 guidance projects adjusted organic sales growth of up to 3% and adjusted earnings per share in the range of $7.60 to $7.90, exceeding the street’s anticipated low single-digit sales decline and earnings estimate of $7.78 per share. This positive momentum follows a year of significant gains for MMM stock, which outperformed the broader market with a 66% increase in 2024 compared to the S&P 500’s 27% rise. The spin-off of its healthcare business into Solventum in April 2024 contributed significantly to this positive trajectory.
A closer examination of 3M’s Q4 performance reveals modest year-over-year revenue growth of 2.2%, reaching $5.8 billion. This growth was driven by marginal increases across its key segments: Transportation and Electronics (1.1%), Safety & Industrial (1.6%), and Consumer (0.2%). The company has faced challenges in recent times, including supply chain disruptions, inflationary pressures, and a strong dollar, which have tempered its growth. The consumer business, in particular, has been impacted by reduced demand in home improvement, auto care, and packaging. Despite these headwinds, the positive Q4 sales growth and the optimistic 2025 projections suggest a potential turnaround.
While revenue showed modest growth, 3M’s profitability experienced a slight decline. The adjusted EBITDA margin contracted by 70 basis points year-over-year to 24.5% in Q4, leading to a decrease in adjusted earnings per share. This contraction underscores the challenges the company has faced in maintaining margins amidst a dynamic economic environment. Looking forward, 3M’s 2025 guidance suggests a more positive outlook, with the company anticipating improved sales and earnings performance.
The market reacted positively to 3M’s Q4 results and optimistic 2025 projections, pushing the stock price up by 4%. However, a longer-term perspective reveals a volatile trajectory for MMM stock. Over the past four years, the stock has experienced significant fluctuations, with returns of 5% in 2021, -30% in 2022, -3% in 2023, and a substantial rebound of 46% in 2024. This volatility contrasts with the smoother performance of the broader market, highlighting the inherent risks associated with individual stock investments. The Trefis High Quality Portfolio, a diversified collection of 30 stocks, demonstrates a less volatile performance and has consistently outperformed the S&P 500 over the same period. This exemplifies the potential benefits of diversification in mitigating risk and achieving more stable returns.
Considering the current macroeconomic uncertainties and 3M’s historical volatility, the question arises whether the company can sustain its positive momentum. While the recent earnings and outlook are encouraging, the stock’s current valuation raises concerns about its potential for further growth. Trading at around $147, MMM stock has a price-to-earnings ratio of 19x based on the midpoint of its 2025 earnings guidance ($7.75 per share). This is higher than its average P/S ratio of 17x over the past five years, suggesting that the stock may be fully valued at present. Investors considering an entry point might be better served waiting for a potential dip in price.
Despite the solid Q4 performance and positive outlook, a cautious approach to MMM stock is warranted given its valuation and historical volatility. While the company has shown signs of overcoming recent challenges, the current market price reflects much of the anticipated future growth. A comparative analysis with its peers and industry benchmarks can provide further insights into 3M’s relative valuation and potential investment opportunities. For investors seeking a more stable and potentially higher return, diversified portfolios like the Trefis High Quality Portfolio offer a compelling alternative to individual stock investments, particularly in uncertain market conditions. This approach can help mitigate risk and potentially achieve smoother returns over the long term.
