Before you throw 3M in the wood chipper, stop and think

3M Company (MMM) has been around since the dawn of time, founded in 1902 at Lake Superior town of Two Harbors, Minnesota. The founding fathers all sounded like the cast from Fargo (1996) and they came up with ground breaking inventions such as Scotch® Tape, Scotch-Brite™ Cleaning Pads, and Post-it® Notes. They’ve made countless revenue from sticky substances in the past 100 years and in the 1990’s 3M sales reached the $15B mark, oh sure you betcha’, $15 Billion. 3M has an endless list of products (besides the ones you know) and they are used all over the world. They just reported a stellar quarter and lowered their 2007 guidance only to have Wall Street put the smack down on 3M’s shares faster than Paul Bunyan wolfing down a full stack of hotcakes.

3M’s net income was $1.2B for Q4 06, that’s a 58% increase when compared to the same period last year. Those results included a $354M net profit related to the sale of the company’s global branded pharmaceuticals business in December. If you exclude the impact of that sale, 3M’s earnings per share during the quarter comes to $1.10 per share. Analysts were expecting 3M to report $1.14 earnings per share and once they lowered the 2007 guidance, it was all over.

3M said they were hurt by competitive pressures for weakness in its optical films segment (which makes films used in LCD televisions). The crying continued after they said a slowdown in the housing industry hurt businesses that normally buy up 3M shingles like Minnesotans’ eat up potato pancakes. Goldman Sachs analyst Jack L. Kelly cut his target price to $80 from $86 and kept a "Neutral" rating on shares. America sold millions of 3M shares yesterday and sell-off continues today, pushing the stock down to $74 and change.

Why would anyone want to be in 3M?

First off, the dividend alone makes me want to jump into all of Minnesota’s 10,000 lakes. 3M’s dividend pays out $.46 per share every quarter. Buying the stock today and just waiting for the company to come back is worth the dividend alone. Not everyone hates 3M – JPMorgan Securities Inc. analyst C. Stephen Tusa Jr. said "the quarter was tough, but investors should take advantage of a weak share price to buy, due to growth expectations." Even Jim Cramer who has pimped 3M for years said last summer:
I like 3M quite a bit actually, and I even recommended it on my "Mad Money" television show last night. I believe 3M is a classic growth stock that can be held for the long-term. Historically, 3M has shown consistent earnings and dividend growth, and while it may not put up Google (GOOG)-esque numbers, I believe it will outperform the market over the next few years.
I only quote Cramer just to knock some sense into the 3M haters. Be reasonable people, do you think this stock isn’t going to come back? Come on. Now with a lower guidance, they are setting the bar low and just imagine if things start to improve or the beat Wall Street’s expectations next Quarter?

3M has a history of splitting its shares, let’s just look at the share splits since 1994 because do you really care about what happened in 1902? Didn’t think so.

Are you reading this article from your PC? Then look on your desk, find the Post-It Notes you have laying around all over the place and flip them over. That’s right, 3M’s got the patent on Post-It Notes, and you can bet they are working on the next sticky substance that will make 3M even more money.

So make up your mind people. Pressure and stress may be upon you if you are a 3M share holder, so let’s do a little roll-play. Let’s pretend Jerry Lundegaard is a 3M share holder and freaking out, and Marge Gunderson is a Wall Street analyst (both from the movie Fargo). And action!….

Jerry Lundegaard: Well, heck, if you wanna play games here! I’m workin’ with ya on this thing, but I… Okay, I’ll do a damned lot count!
Marge Gunderson: "Sir, right now?"
Jerry Lundegaard: "Yah, right now. You’re darn tootin’."

We know Jerry doesn’t have the stomach for this kind of play, but you can bet once 3M shares start to rebound, guys like Jerry will be wishing they didn’t put their shares in the wood chipper. But if you do put your shares our yourself in the wood chipper, you can betcha’ Marge Gunderson will have a word of two fer ya.

Marge Gunderson: So that was Mrs. Lundegaard on the floor in there. And I guess that was your accomplice in the wood chipper. And those three people in Brainerd. And for what? For a little bit of money. There’s more to life than a little money, you know. Don’t you know that? And here ya are, and it’s a beautiful day. Well, I just don’t understand it.

Neither do we Marge, neither do we.

Article written by: Phil McCallister
Article posted on: January 31st, 2006

Disclaimer: The Author does not own any shares or hold any short/long positions in MMM

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