Few great companies have had their stocks hit as hard in 2020 as 3M (NYSE:MMM).
The shares are down 15%, after management announced 2019 results that showed .
While the company’s price-earnings ratio on Feb. 26 is still above 19, the $1.47 per share dividend now yields 3.9%. That dividend was still supported by earnings.
This begs the question. Is 3M your shelter from the coronavirus storm?
A Series of Unfortunate Events
The biggest problem 3M faces is from litigation. These are chemicals formerly used in fabrics, Teflon pans and in chrome plating, among other things. They don’t break down in the body. They increase cholesterol levels and sometimes cause cancer.
3M began eliminating PFAs in 2006, , and has been paying out settlements. The total cost to the company, including remediation, could still be . This is a serious overhang on the stock, amounting to twice its annual profits. In its fourth-quarter report the company took a pre-tax charge of $214 million, 29 cents per share, on the litigation.
The company also took a charge of $134 million, 20 cents per share, to cover what it called “restructuring,” including 1,500 layoffs. The international operations division was eliminated. In its earnings call the company also said demand from China remains weak, which .
But health concerns can also work to 3M’s benefit. The coronavirus from China is , a big 3M product. Overall healthcare sector revenues were up 25% year-over-year in the fourth-quarter report and, 3M insists, .
Healthcare revenues rose significantly because 2019 also saw 3M buy . The company specializes in surgical wound care, selling under the KCI brand. It will add $1.5 billion per year to the company’s revenue.
Can 3M Come Back?
Hope for the future starts with that dividend. When markets fall in a panic, as they’re doing now, investor tastes quickly shift from capital gains to income, and 3M has that.
The earnings guidance for 2020, , was still just 7 cents per share short of analysts at $9.52. The stock was hammered over it because management had cut guidance twice in 2019, and the fourth quarter still failed to meet the mark.
InvestorPlace’s Luke Lango also thinks this could be the bottom for 3M’s businesses. He expects the global industrial slowdown to reverse and believes 3M can gain both growth and margins as a result. The Purchasing Managers Index (PMI), which measures future industrial growth, rose sharply in January to . This indicates growth may be on the way.
While most analysts give only a tepid “hold” rating to 3M, according to TipRanks, their is still 14% higher than where it was due to open for trade Feb. 26.
The Bottom Line on MMM Stock
The best time to buy a stock is when everyone is negative on it.
Right now, that describes 3M. Even the coronavirus can’t save it, writes Will Ashworth. A free cash flow analysis reveals it is .
But if you’re buying stocks for income, now may be the right time for you to get into 3M. The bad news is already in the stock, and the company will still pay you to own it while you wait to see what happens to the business.
In a down market, a yield of 3.9% is alpha.
has been a financial and technology journalist since 1978. He is the author of the environmental thriller , available at the Amazon Kindle store. Follow him on Twitter at . As of this writing he owned no shares in companies mentioned in this story.
