These two US manufacturing stocks are giants with global scale.
3M Company (NYSE—MMM)
In the year to December 31, 2020, manufacturing stock 3M earned $5.384 billion, or $9.25 a share. This was up by 18.4 per cent from earnings of $4.570 billion, or $7.81 per share. Excluding special items, this year’s earnings came to $8.74 per share, down by 1.56 per cent.
3M’s businesses fall into one of four segments. The largest is its Safety and Industrial segment. In 2020, its underlying earnings jumped by 19.8 per cent, to account for nearly 37 per cent of the company’s total. The underlying earnings of the Health Care segment went up by 9.1 per cent, partly due to the pandemic. The segment generated a quarter of the company’s total. The underlying earnings of the Transportation and Electronics segment fell by 10.1 per cent. People are travelling far less, of course. The segment accounted for only 24 per cent of the underlying earnings. 3M’s smallest segment is its Consumer segment. Its underlying earnings advanced by 10.4 per cent, to more than 14 per cent of the total.
3M sells its products worldwide, of course. In 2020, its sales in the Americas went up by 2.5 per cent. At the same time, however, the company’s sales in the Asia-Pacific region declined by 2.3 per cent. Its sales in Europe, the Middle East and Africa slipped by 1.9 per cent. Overall, 3M’s 2020 sales of $32.184 billion inched up by 1.5 per cent. Stronger sales in the Americas more than offset weaker sales everywhere else.
In 2021, 3M expects to earn from $9.20 to $9.70 a share. The mid-point of $9.45 a share is higher than the $9.25 a share that the company earned last year. But it’s expected to earn $9.54 a share in 2020. Based on this estimate, the stock trades at a reasonable forward price-to-earnings ratio of 18.4 times.
3M expects this year’s sales to grow by five to eight per cent. But excluding changes in the value of currencies, it expects its sales to grow by a slower three to six per cent.
In 2020, 3M spent $368 million to buy its shares. The company did raise $429 million by issuing new shares. Even so, the weighted average number of shares outstanding totaled 582.2 million in 2020. That was down by 2.9 million shares from the year before.
Chairman and chief executive officer Mike Roman said: ‘Throughout 2020 we distributed two billion respirators globally and supported the development and manufacturing of vaccines and therapeutics to help the world respond to COVID-19. 3M forged partnerships with the US, Canada, Germany, and Singapore governments to create additional manufacturing capacity . . . we will continue to prioritize investments in growth, productivity and sustainability as we build on our progress and deliver strong results in 2021.”
3M is also using its growing cash flow to strengthen its balance sheet and make necessary investments. On New Year’s Eve, 3M’s total debt of $18.705 billion was down by $1.608 billion from a year earlier. Also, on New Year’s Eve, 3M’s holdings of cash and marketable securities were up by $2.587 billion from a year earlier, to $5.038 billion.
In 2020, 3M’s investment in R&D (Research and Development) dipped by 1.7 per cent, to $1.878 billion. That’s equal to 5.8 per cent of last year’s sales of $32.184 billion.
3M Company remains a buy for long-term share price gains and attractive, growing, dividends.
The Boeing Company (NYSE—BA)
RBC Capital Markets analyst Michael Eisen turbo boosts his price target to $307 a share from $209 for the world’s largest aerospace company, Boeing Co., as he welcomes “the return of the MAX”. Flight activity for the 737 MAX is increasing daily, while air travel in general is showing a U-shaped recovery. The analyst sees no reason to change his Buy recommendation for this US airplane manufacturing stock.
The company was tarnished in early 2019 after its 737 MAX aircraft’s auto pilot capability malfunctioned, causing 346 people to die in two crashes. However, since mid-November 2020, the MAX aircraft has returned to the skies after the US Federal Aviation Administration (FAA) reversed its March 2019 suspension of all MAX models.
Now, since December 9, GOL Airlines—a Brazilian low-cost airline—has been running, on average, 16 commercial flights on MAX daily since becoming the first airline to bring the MAX aircraft back in service. Meanwhile, American Airlines, United Airlines and Southwest Airlines have shown a steady increase of testing, re-certification, and re-positioning flight activity.
Regarding air travel in general, the analyst has revised his global RPK (revenue passenger kilometres) forecast to anticipate 13 per cent year-over-year demand growth in 2021 followed by a robust 91 per cent bounce in 2022. He expects RPK to exceed 2019 levels by early 2024.
However, despite the vaccine developments that have boosted commercial airline stocks over November and December, he continues to see significant pressure on global RPK through April 2021. He says the April 2020 lows provide easy year-over-year comparables—especially as increased vaccination levels this year should likely usher in herd immunity, which will further inflate potential year-over-year RPK growth. Boeing, the world’s largest, is a Buy.
This is an edited version of an article that was originally published for subscribers in the February 2021, First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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The MoneyLetter •3/28/21 •