3M Company (MMM) is scheduled to report its fourth-quarter 2014 results before the opening bell on Jan 27. In the last reported quarter, quarterly earnings beat the Zacks Consensus Estimate by a couple of cents. Let’s see how things are shaping up for this announcement.
Factors to Consider
3M continues to deliver sustainable increases in sales, earnings and free cash flow, benefiting from its long-term strategy of accelerating investment in high-growth program. For the five-year period from 2013−17, 3M affirmed its financial objectives and remained confident of achieving its set targets. These include average earnings per share growth of 9%−11% per year, average organic sales growth of 4%−6% per year, a 20% return on invested capital and 100% conversion of net income to free cash flow.
Portfolio management, investment in innovation and business transformation are the three key levers on which the company intends to focus moving forward. 3M also aims to continue investing in capital expenditures and research and development to support organic growth as it aims a capital structure strategy and increased capital deployment.
3M expects to invest between $5 billion and $10 billion for acquisitions through 2017. The company has been making efforts to reposition its portfolio by divesting assets that no longer fit its corporate strategy and indulge in investments which are more in tune with it.
However, the company’s growth objectives are largely dependent on timing and market acceptances of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to market at an acceptable price point. Also, given its international presence, adverse foreign currency translations are likely to affect the company’s ability to realize projected growth rates in its sales and earnings.
Earnings Whispers
Our proven model does not conclusively show that 3M will beat the Zacks Consensus Estimate in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.
Negative Zacks ESP: This is because the Most Accurate estimate stands at $1.77 while the Zacks Consensus Estimate is higher at $1.80. This equates to a negative ESP of -1.67%.
Zacks Rank: 3M’s Zacks Rank #3, when combined with -1.67% ESP, makes surprise prediction difficult. Note that stocks with Zacks Rank #1, #2 and #3 have a significantly higher chance of beating earnings.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat in the imminent future.
Arch Capital Group Ltd. (ACGL), earnings ESP of +1.92% and a Zacks Rank #1.
Century Aluminum Co. (CENX), earnings ESP of +7.81% and a Zacks Rank #1.
Horsehead Holding Corp. (ZINC), earnings ESP of +8.33% and a Zacks Rank #3.
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