Back from the wilderness, the company has enjoyed an exceptional stockmarket rally between autumn 2023 and autumn 2025, with a valuation that has doubled in a straight line over the period.
It is true that, despite legal headlines that reeked of scandal, it was at the very least curious to see an industrial leader with stratospheric profitability valued as it was at just 8x earnings. See on this subject 3M Company: Another Mega-Cap Under Pressure and 3M Company: Out of the Rut?
As we said in our previous earnings commentary, 3M's main challenge remains a return to organic growth. Despite sizable R&D budgets that are still set to increase, it has in fact been missing from the group for far too long.
That has not happened this year: growth remains nowhere to be seen; it is even negative after inflation, while the cost structure is feeling the effects of that inflation, but in the opposite direction. As a result, operating profit is down sharply, while at the bottom line, legal matters weigh even more heavily on net income.
Free cash flow has climbed to $1.4bn, from $0.6bn a year ago at the same point. Added to the monetisation of cash equivalents carried on the balance sheet, the Minneapolis-based group generated $3.6bn over the year, allowing it to fund $3.2bn in share buybacks and repay $0.7bn of debt, with cash ultimately down by just under $0.4bn.
2024 and 2025 therefore stand as the two worst annual financial years in 20 years. But unlike in the autumn, the current valuation implies a swift normalisation of results and a prompt return to the profit-generating capacity of old.
MarketScreener notes that eight of the group's top ten institutional shareholders have slightly reduced their stakes recently, with the notable exception of JP Morgan and Norway's sovereign wealth fund, which increased theirs.
