Tide Shifts for 3M: How to Profit from the Rally

Key Points

• 3M is in a strong updraft driven by improving results, cash flow, capital return, and a growth outlook.
• Analysts' trends are positive and leading the market to higher levels.
• Capital return includes dividends and buybacks, which reduced the count significantly in Q4.

3M NYSE: MMM faced many struggles but has overcome them and embarked on a new age of growth. Hurdles, including multiple legal issues, are in the rearview mirror, and the road ahead is clearer. That road includes resuming growth, improving cash flow, strengthening the balance sheet, and robust capital return. The stock is already up 100% because of the changing market tide; the signals in January suggest this uptrend has room to run and could advance by another $75 to set a new all-time high, and the move could be a quick one. 

Among the critical details is the company’s capital return. With the legal issues behind it, the capital outlook is unimpaired, and the outlook is robust. The company forecasts free cash flow growth in 2025 and a roughly 100% free cash flow conversion. Free cash flow in 2024 allowed it to sustain its dividend, running near 2% yield ahead of the Q4 release and share repurchases, which are significant. The company reduced the count by only 0.27% for the year but 1.6% in Q4, marking a peak in activity leading to sustained share-count reducing buybacks in 2025 and beyond. 

The balance sheet highlights are good. The balance sheet reflects the impact of divestiture and acquisition but is healthy, leaving the company in a solid position to execute its strategy. The company is well-capitalized with low leverage. The cash balance is down slightly to $5.7 billion but offset by significantly increased short-term investments that put it in a position of strength. Current and total assets and liability are down, leaving equity down but offset by the declining share count and the growth outlook. 

The guidance for 2025 is adjusted organic growth of 2% to 3%, better than analysts forecast and compounded by a solid earnings outlook. The midpoint of the guidance range aligns with MarketBeat’s reported consensus, a reassuring figure likely to be considered cautious in hindsight. 

3M Shares Advance 5% Following Mixed Results 

3M’s Q4 results were mixed regarding the analysts’ forecasts, but so many factors were in play that the slight top-line miss is easily ignored. The company’s $5.58 billion net revenue is down 24.6% due to divestiture but missed by only 85 basis points, with Q4 total sales up 0.1% and organic revenue up by 2.1%. More importantly, the margin remained strong, with the GAAP results improving by roughly 300 bps and the adjusted margin relatively flat.  Adjusted margin is down only 0.2%, producing better than expected results and expected to stay healthy in 2025. The adjusted $1.68 earnings is down only 2% compared to the nearly 25% top-line contraction and $0.14 ahead of forecasts. 

3M’s results should sustain the bullish analysts' trends in 2025. Those include increasing coverage, improving sentiment, and a rising price target. The coverage has increased by 60% since the low in 2023, while sentiment improved from Reduce to Moderate Buy. The activity ahead of the report included some price target reductions but to levels above the consensus, up 35% from January 2024 to January 2025. The consensus target in mid-January 2025 assumes fair value for this industrial stock at the $140 level; the high-end range implies a 35% upside in 2025. 

3M Is in a Strong Uptrend, Melting Higher on Improved Results, Outlook, and Capital Return

3M’s price action is about as strong as it could be, showing bullish conditions on the daily, weekly, and monthly charts that confirm the market reversal. The price action leading into the Q4 results is a bullish Flag Pattern confirmed by the early market action following it. Assuming the market sustains the upward momentum, it could rise an amount equal to its flag pole from the breakout point, which is roughly $75, low to high. In this scenario, MMM stock could advance by $75 by early summer and continue to advance from there.