Q3 Preview: Analysts Cautious on 3M (MMM) into Results on Peer Warnings

Shares of 3M Co. (NYSE: MMM) are trading higher Monday heading into third-quarter numbers, due out before the market opens Tuesday, October 25th.

The Street sees 3M reporting earnings of $1.61 per share on revenue of $7.78 billion. Earnings would be a marginal improvement from $1.60 reported last quarter, and a 5.2 percent gain from $1.53 reported in the same period last year. Analysts are generally pretty good with 3M, only missing by about 1.4 percent over the last four quarters. However, over the last 10 quarters, 3M has beat views by an average of 6.24 percent, implying earnings of $1.71 per share during the third quarter.

Shares of 3M fell 23.8 percent through the third-quarter and are up 14.5 percent since. The stock is down about 3 percent in 2011. 3M has traded in a range of $68.63 to $98.19 over the last 52-week time frame.

Data from the most recent quarter has 3M with a book value of $24.42 per share, and cash of about $6.38 per share. 3M is trading with a forward valuation of 12.4x expected 2012 earnings, compared with 10.4x for DuPont de Nemours & Co. (NYSE: DD), 12.3x for Johnson & Johnson (NYSE: JNJ), and 9.2x for Avery Dennison Corp. (NYSE: AVY).

Data from Bloomberg has 13 analysts with a Buy rating on shares, six at Hold, and two with a Sell. The Street price target average is $96.20, with a low of $79 and high of $125.

Analyst Comments

• JPMorgan is modeling for earnings of $1.52 per share. The firm is cautious into numbers, saying 3M could end up with a second-half 2011 miss from lower-than-expected third-quarter results or light fourth-quarter guidance. The firm believes the primary driver in either scenario will be consumer electronics exposure.
  
  Industrial results should be solid in the quarter, with a 16 percent sequential decline in Europe, and North American production up about 100 basis points from last quarter. JPMorgan is looking for a correction in Optical, saying, "management indicated that while Optical margins fell significantly, they were still in the “double digits.” Assuming ~12% for Optical would imply a reasonable ~20% for the other businesses (Optical is ~45% of segment revenues)."
  
  E&C could see slowdown based on peer reports, and C&O acceleration is unlikely, according to JPMorgan.
  
  Some key questions on the call will be: "(1) How is visibility in electronics channels? (2) Update on price/cost in context of recent commodity volatility? Any tailwind in 2012? (3) Preliminary thoughts on 2012, including pension?"
  
  
• Goldman Sachs sees earnings of $1.56. Goldman sees improved second-half incremental margins given easier comps. "Among more notable segments, we expect Industrial & Transportation organic revenues +11% on a rebound in 2H auto production, and +8.5% organic for Safety & Security. Relative to consensus, we believe we have a more cautious outlook for organic revenue growth (-17% in 3Q) at Display & Graphics given continued pressures in Optical Film."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out 3M's past performance at Streetinsider's 3M Income Statement.

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