Shares in multi-industry industrial company 3M (MMM 1.68%) rose 10.1% in March, according to data provided by S&P Global Market Intelligence. There wasn't any major fundamental news in the month, so the stock price rise was likely caused by a change in investor sentiment.
Investors' more positive outlook might well have come about after management spoke at a couple of investor conferences in the middle of March. The presentations by CEO Mike Roman and CFO Monish Patolawala served to allay investor fears over its trading environment so far in 2021. Picking out three specific concerns, 3M could be feeling pressure from:
- A slowdown in vehicle production due to semiconductor shortages for vehicles -- 3M has significant sales to the auto market (adhesives, materials, parts, etc.).
- Rising raw material costs (notably ethylene and polypropylene) pressuring its profit margin.
- A dip in elective medical procedures at the start of the year caused by the COVID-19 pandemic that will negatively impact 3M's healthcare sales.
Indeed, management discussed all these issues during the presentations, and what it had to say eased investors' worst fears.
For example, Roman and Patolawala said that based on current conditions, it was likely that a $0.20 headwind from rising raw material costs would occur in 2021 compared to an original forecast of a $0.10 headwind. The full-year EPS guidance is for $9.20 to $9.70, so $0.10 is not really that big a deal. Also, according to management, elective procedures are now coming back strongly.
Unfortunately, the situation with automotive production is far less clear, and there are concerns that semiconductor manufacturers won't be able to ramp up production enough to meet automotive demand. That's something to watch.
Investors should keep a close eye on the first-quarter earnings, which are due at the end of April. There's undoubtedly going to be some pressure on the earnings from the issues discussed above. On the other hand, 3M remains a good value option for investors. Hopefully, management's outlook will assuage investors' fears again during the earnings presentation. All eyes will be on 3M's guidance in the upcoming results.