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Is 3M (MMM) Likely to Beat Q2 Earnings on Organic Growth?

3M Company MMM is slated to release second-quarter 2017 results before the opening bell on Jul 25. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 9 cents. Over the trailing four quarters, 3M reported an average positive earnings surprise of 1.3%, beating estimates thrice and matching them once. Let’s see how things are shaping up for this announcement.        

Why a Likely Positive Surprise?

Our proven model shows that 3M has the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP:3M has an Earnings ESP of +1.16%, as the Most Accurate estimate of $2.62 is pegged above the Zacks Consensus Estimate of $2.59.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

3M Company: Price and EPS Surprise

3M Company Price and EPS Surprise

3M Company Price and EPS Surprise | 3M Company Quote

Zacks Rank: 3M carries a Zacks Rank #2 (Buy), which when combined with a positive ESP, makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

What’s Driving the Better-Than-Expected Earnings?

In the last three months, 3M’s shares yielded a return of 9.38%, outperforming the industry tally of a gain of 0.29%.

3M expects to deliver sustainable increase in earnings and free cash flow, driven by benefits from long-term strategy of investment in high-growth programs. Further, the company has been investing in innovation as well as research and development. This includes addition of extra resources to bring the company’s scientists and application engineers closer to customers. These investments are expected to support its organic growth and deliver premium margins.

Portfolio management and business transformation are also key catalysts on which the company intends to focus going ahead.

Earning for the quarter are likely to increase 24.31% year over year on higher revenues. 3M's global footprint, diversified product portfolio and the ability to penetrate in different markets have been its forte. During the five-year period from 2016–2020, 3M expects 8–11% growth in earnings per share driven by an organic sales growth of 2–5%.

The company expects about 20% return on invested capital during this tenure with a free cash flow conversion rate of 100%. Furthermore, 3M is standardizing its business processes through a new, global ERP system. The company expects these efforts to result in $500 to $700 million in annual operational savings by 2020, and an additional $500 million reduction in working capital. Such focused attempts to maintain growth momentum is commendable.

Other Key Stocks

Here are some stocks within the sector that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat:

AptarGroup, Inc. ATR, with an Earnings ESP of +1.03%, and a Zacks Rank #2.

Avery Dennison Corporation AVY, with an Earnings ESP of +1.68%, and a Zacks Rank #2.

United Technologies Corporation UTX, with an Earnings ESP of +2.26%, and a Zacks Rank #3 (Hold).

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AptarGroup, Inc. (ATR): Free Stock Analysis Report
 
3M Company (MMM): Free Stock Analysis Report
 
United Technologies Corporation (UTX): Free Stock Analysis Report
 
Avery Dennison Corporation (AVY): Free Stock Analysis Report
 
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