On April 8, Zacks Investment Research downgraded industrial
) to a Zacks Rank #3 (Hold) from a Zacks Rank #2 (Buy) on the
heels of downward estimate revisions.
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Despite the downtrend, the company still has the potential to
drive the stock up. The stock is currently trading at a forward
P/E of 18.0x with long-term growth expectations of 11.3%.
Why the Downgrade?
Over the last 7 days, most of the earnings estimates for 3M have
been revised downward for first quarter 2014 as well as for the
full year. This seems to be an aftereffect of a slightly bearish
outlook for the ongoing quarter.
The downward earnings estimates are largely a function of
uncertainties in the current macroeconomic environment, which can
adversely affect the company's earnings growth as well as
margins. Despite an above-average sales growth and solid share
buybacks, limited upside margin potential will take away that
advantage over its peers.
In addition, raw material inflation, higher R&D expense and
increasing competition are some of the other concerns. 3M's
growth objectives also depend on market timing and acceptance of
new product offerings, including its ability to continually
refresh its product suite and bring those to the market at
acceptable price points. This makes 3M vulnerable to market
risks. The company also faces fierce local competitive pressure,
specifically in the emerging markets. Establishing local
operations are likely to hurt its profitability to some extent
due to continuous investments in value drivers that are
inevitable to fend off competition.
Other Stocks to Consider
Stocks that look promising and are worth looking into now include
), each carrying a Zacks Rank #2 (Buy).