Companies To Watch In 2016: 3M
Which Minnesota companies should you keep your eye on in 2016? TCB talked to several analysts who provided their insights. Over the next few weeks, we’ll share with you what we heard.
Despite a recent setback with a less-than-stellar quarter, Inge Thulin believes 3M is poised to rise again.
The CEO of the Maplewood-based manufacturer of Post-It notes, Scotch tape and other industrial supplies, told investors that demand for the company’s products “will come back again.”
In the eyes of Deane Dray, a managing director at RBC Capital Markets, “investors are noticeably on edge.”
After decreasing its full-year earnings forecast for 2015, Dray and Thulin both pegged 3M’s revenue base overseas (amounting to 64 percent of its total revenue) and a slow global economy as reason for the drop. According to Dray, its broad international presence isn’t a downside, though, as 35 percent of the revenue base is in high-growth markets like China. While 3M expects to achieve 1 to 3 percent organic revenue growth in 2016, Dray predicts high-growth markets could double that pace.
“Its stellar metrics and quality of earnings have made it a core holding for industrial [portfolio managers],” Dray said. “By 2017, management expects emerging markets to account for 40-45 percent of total sales,” which could result in “an optimistic 7-10 percent growth in developing countries.”
The company’s electronics and energy business is the only one of 3M’s five business sectors that Dray believes won’t improve in 2016, citing a likely 2 percent fall. Recently, Thulin said a declining demand for televisions, tablets and smartphones have weakened 3M’s ability to sell adhesives, coatings and other materials used to construct electronic devices.
Moving forward, 3M will look to capitalize on a record year of merger and acquisition spending that totaled roughly $3 billion. (According to Dray, this will likely net a 1 percent revenue gain in 2016). Research and development, which Thulin calls the company’s “heartbeat,” is expected to top $1.8 billion. All of these efforts on top of its 2015 restructuring moves could position 3M to continue a steady climb in stock value, which has more than doubled in four year’s time (from $71.79 in September 2011 to $148.94 today).