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Stock Strategist

3M to Maintain Its Industry-Leading Profitability

Company announces unchanged operating guidance, plan to return cash to shareholders.


At its analyst briefing, wide-moat  3M (MMM) reiterated its annual operating goals for the period through 2017, which are in line with our own expectations and are unchanged from the five-year plan offered a year ago. We applaud the company for maintaining its industry-leading profitability, and we expect operating margins to remain lofty (near 22%) over the long run thanks to continued portfolio pruning, a new rollout of enterprise resource planning software, and accretive bolt-on acquisitions. Moreover, the firm should see a beneficial mix shift, as emerging markets represent an increasing portion of 3M’s sales and the company enjoys stronger profitability in these regions.

We plan to maintain our $120 per share fair value estimate in light of 3M's reiterated annual operating goals through 2017 of 4%-6% organic revenue growth, 9%-11% earnings-per-share growth, 20% returns on invested capital, and free cash flow roughly 100% of net income. For 2014, management expects 3%-6% organic revenue growth and earnings per share in the range of $7.30-$7.55; we currently forecast organic gains of about 5%-6%, and EPS of $7.52.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.