The market wasn't impressed by 3M's (MMM +1.48%) recent fourth-quarter earnings report and its 2026 guidance. But here's the thing. The disappointing news came from its macro-economic outlook, rather than from its internal execution. On the contrary, CEO Bill Brown's operational restructuring is improving profit margins, productivity, and innovation, and the company is primed to perform very well as its end markets improve.
Here's why 3M stock is a great buy now.
3M continues to outperform its end markets
Investors were underwhelmed by management's guidance for just 3% organic sales growth in 2026, and it's worth noting that 2025 full-year organic sales growth of just 2.1% came in at the low end of the 2%-3% guidance management gave at the start of the year.
Key Data Points
Whichever way you look at it, 3M's end markets aren't helping much. Still, management's guidance for 2026 earnings per share (EPS) of $8.50 to $8.70 implies earnings growth of 5.5% to 7.9%. It's a rate significantly higher than management's estimate of 1.5% growth for the global industrial production index in 2026. Also note that 3M's estimate for 2025 was 2%, so in its view, global industrial growth is slowing in 2026, but its estimated organic sales growth rate is set to improve to 3% in 2026 from 2.1% in 2025.
3M's restructuring is working
The relative improvement comes down to Brown's operational restructuring, which has improved on-time in-full delivery rates and asset utilization, reduced losses due to quality issues, and focused on new product introductions (NPI). That last thing is particularly important with 169 NPIs in 2024, growing by 68% to 284 in 2025, and forecast to grow by 23% in 2026 to 350.
Image source: Getty Images.
3M stock is a buy
There are three reasons to buy 3M stock. The first comes down to the NPIs. The main part of 3M's earnings growth in 2026 is set to come from what management defines as "price/volume" and "net productivity." NPIs are critical to driving earnings growth as they tend to command more pricing power and can be differentiated products that break out of the commodity pricing mold. That's something 3M struggled with under then-CEO Mike Roman.
Second, the areas of weakness 3M is seeing are in interest-rate-sensitive sectors like auto builds, auto aftermarket, consumer discretionary, and roofing granules. They could all improve in a lower-interest-rate environment in 2026. In any case, 3M's largest segment is performing the best, while the problematic segment is its smallest.
|
3M |
Fourth-Quarter Organic Sales Growth |
Full-Year Organic Sales Growth |
Full-Year Sales |
|---|---|---|---|
|
Safety & Industrial |
3.8% |
3.2% |
$10,961 million |
|
Transportation & Electronics |
2.4% |
2% |
$7,435 million |
|
Consumer |
(2.2%) |
(0.3%) |
$4,931 million |
Data source: 3M presentations.
A good value stock
Finally, the stock's forward price-to-free-cash-flow (FCF) multiple of 18 is attractive for a mature industrial company growing earnings at a high single-digit rate. Moreover, note that 3M's guidance bakes in a moderate outlook for the economy; for example, it assumes no growth in industrial production in the U.S. in 2026.
Any improvement in that outlook could boost earnings expectations, suggesting the risk is skewed to the upside for the stock, and with the stock looking undervalued as it is, it looks like a good buy right now.
