Instant Analysis: 3M Company 2017 Outlook Meeting

By Lee Samaha Markets Fool.com

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Image source: 3M Company website.

What happened

3M Company (NYSE: MMM) gave its 2017 investor day presentation and prepared investors for what to expect in the coming year. A more detailed analysis of it will follow, but for now let's look at the headline guidance. 3M is already in the fourth quarter of 2016 so here's the outlook for rest of the year:

  • Full-year 2016 organic growth to be approximately flat
  • Full-year 2016 EPS to come in at the low end of the guidance range of $8.15 to $8.20

The organic growth outlook is the same as what was given at the third-quarter results presentation, but management guiding toward the low end of the EPS range is a slight disappointment.

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Turning to the all important 2017 outlook:

  • Organic local currency growth in the range of 1% to 3%
  • GAAP EPS estimated in the range of $8.45 to $8.80, representing growth of 4% to 8%
  • Operating cash flow in the range of $6.1 billion to $7.1 billion
  • Free-cash flow in the range of $4.8 billion to $5.6 billion

Putting these figures into context (assuming the mid-point of the guidance ranges), it means 3M Company is on a forward P/E ratio of 20.7 times earnings and will generate around 4.4% of its current enterprise value in free-cash flow next year.

Does it matter

Whichever way you look at 3M Company, it is not a cheap stock, and in common with its peer Illinois Tool Works (NYSE: ITW) the pressure is on to not disappoint investors in any way.

While Illinois Tool Works's recent presentation gave the company a positive outlook -- margin expansion and ongoing self help initiatives are the key -- 3M Company's outlook was a bit disappointing.

In the investor day presentation in March, management outlined its targets for the 2016-2020 period. That included organic local currency growth of 2% to 5% per annum and average annual EPS growth of 8% to 11%. However, as previously mentioned, 2016 is likely to see flat organic growth followed by 1% to 3% in 2017 -- both below the mid-term targets. Moreover, the top end of the 2017 EPS guidance range just touches the bottom end of the mid-term range.

All told, as a highly regarded company, 3M Company probably needed to do a bit more with headline guidance that's tracking below its 2016-2020 targets, and for that reason alone the outlook is slightly disappointing.

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Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Illinois Tool Works. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.