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Will 3M (MMM) Q3 Earnings Miss Despite Inorganic Growth?

The industrial goods manufacturer 3M CompanyMMM is scheduled to report its third-quarter 2015 results before the opening bell on Oct 22. In the last reported quarter, quarterly earnings beat the Zacks Consensus Estimate by 3 cents. Let's see how things are shaping up for this announcement.

Key Factors in the Third Quarter

During the soon-to-be-reported quarter, 3M completed the acquisition of Polypore International Inc.'s Separations Media business for $1 billion. Post acquisition, the acquired business will be a part of the 3M Membranes business unit within 3M's Industrial Business Group.

Polypore's Separations Media business provides microporous membranes and modules for filtration in the life sciences, industrial and specialty segments. This acquisition is likely to expand 3M's existing core filtration platform in several high-growth segments and strengthen its position in technology, manufacturing and branding. Also, the company will now be able to meet customers' requirement for high-value filtration solutions more effectively.

This acquisition is likely to be accretive by 3 cents to 2015 earnings. Consequently, 3M updated its 2015 earnings guidance and expects full-year GAAP earnings to be in the range of $7.73 to $7.93 per share versus its previous guidance of $7.80 to $8.00. 3M 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.

The company expects to invest between $5 billion and $10 billion for acquisitions through 2017. 3M 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.

Portfolio management, investment in innovation and business transformation are the three key levers on which the company intends to focus on moving forward. 3M also aims to continue investing in capital expenditures and research and development to support organic growth as it aims at a capital structure strategy and increased capital deployment.

Earnings Whispers

Despite the best attempts to restructure its business, our proven model does not conclusively show that 3M is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.

Zacks ESP: Expected Surprise Prediction or Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -0.50%. This indicates a likely earnings miss for the shares.

Zacks Rank: 3M's Zacks Rank #3 (Hold) when combined with a negative ESP decreases the predictive power of ESP. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Allegiant Travel Company ALGT , earnings ESP of +0.76% and a Zacks Rank #2.

The Chubb Corporation CB , earnings ESP of +3.57% and a Zacks Rank #1.

Capital One Financial Corporation COF , earnings ESP of +2.08% and a Zacks Rank #3.

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3M CO (MMM): Free Stock Analysis Report

CAPITAL ONE FIN (COF): Free Stock Analysis Report

CHUBB CORP (CB): Free Stock Analysis Report

ALLEGIANT TRAVL (ALGT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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