You've got to love 3M (NYSE: MMM). The company, whose colleagues include Johnson & Johnson (NYSE: JNJ) and DuPont (NYSE: DD), reported earnings for the third quarter on Tuesday. The numbers appeared good to me.
3M's revenues increased over 6%. Operating income went up well over 8% (excluding special items). Operating income margins rose 60 basis points. The bottom line went up 10%, coming in at $1.42 per share on an adjusted basis. Analysts were looking for about $1.38 per share, so management certainly beat the experts on Wall Street. One of the great things about this Dow component is its ability to generate a decent stream of cash flow. For the nine-month period, 3M delivered $3.4 billion in operational cash flow. That represented a 25% increase. Capital expenditures remained about the same, so free cash flow also took a really superb hike. Free cash generated came in at $2.4 billion, a 42% increase.
For the year, 3M expects to earn at least $5.40 to $5.48 per share, excluding special adjustments. If 3M hits even the low end of the range, then the stock has to be considered cheap. The blue-chip company, which operates in many different areas, including health care and transportation, and which produces products as varied as adhesive tape and surgical masks, closed on Tuesday at about $60 per share. It's well off the 52-week high of $88.70 and it's not too near the 52-week low of around $50.
I like the yield and the valuation, but I'd like to wait for a bit of a pullback before taking a look at 3M. We're just not in a decidedly upward-trending market, and guidance could change (as it apparently did since the last time I covered 3M). Buying on pullbacks is always smart strategy.
Disclosure: I don't own any company mentioned; positions can change at any time.
Even if the national headlines weren't already providing enough focus on the economy, plenty of economic data is due out as the month and the quarter wind down. U.S. economic data scheduled to be released this week include:
"Broad-based chemical, agriculture, and 'science technology' company DuPont (NYSE: DD) is about as 'blue chip' as companies get," says Bill Martin.
In his BullMarket.com, the trading and investing expert explains, "One of the oldest firms in the country DuPont has shown it can continue to remake itself and grow." Here's his review.
"DuPont offers the potential of significant gains once the major weak links in the U.S. economy -- namely housing and the automotive sector -- rebound from their funks and eventually begin to grow.
"DuPont turned in a solid performance in the second quarter, posting a profit of $1.08 billion, or $1.18 per share, up from $972 million, or $1.04 per share, a year ago.
"The bottom line was enhanced by seven cents a share as the result of a lawsuit settlement and a lower tax rate that resulted from a one-time tax settlement. The company cited strength in is agricultural products business as well strong sales in emerging markets for the growth.
DuPont (NYSE: DD), a competitor of Dow Chemical (NYSE: DOW), reported earnings for the second quarter today, and as Melly Alazraki stated in her Before the Bell article, agriculture helped drive results and earnings. Expectations were not just met, they were beaten by four pennies. The call was for $1.07 in earnings per share by analysts, and DuPont delivered, on an adjusted basis (excluding $0.07 related to a litigation benefit and a better tax rate), $1.11 per share. Last year at this time, DuPont reported $1.04 per share for the bottom line, giving the company about a 7% growth rate.
Shares are up as of this writing by a little under 2%. Not a bad increase considering DuPont is a stodgy Dow Jones component. But it's not exactly an exciting price rally, and it basically reflects my feelings for the earnings results. They were decent enough, but they weren't so overpoweringly good that I'd want to initiate a position in DuPont. And that's saying something, because the business is cheap on a forward-looking basis and from a dividend-yield point of view, in my opinion. DuPont thinks it can do somewhere between $3.45 and $3.55 per share for the fiscal year. With shares trading around $45, that gives the stock a decent valuation.
Yet, DuPont used cash for operations in its first six months, and capital expenditures have increased. Will the economy be kind to DuPont in the coming months? That's the wild card these days, the dreaded economy. Yes, DuPont may have done all right this quarter, but I don't need to buy it. I can look elsewhere for more compelling ideas.
Disclosure: I don't own any company mentioned; positions can change at any time.
Resource industry specialists Roger Conrad and Yiannis Mostrous are bullish on the agriculture and water sectors; in their model portfolio they already hold 6 stocks in these sectors.
The co-editors of Vital Resource Investor explain, "We see strong underpinnings for continued higher agricultural prices for many years to come." Here's their latest agrculture play: EI du Pont de Nemours (NYSE: DD).
"Recently the United Nations Food Agency warned of civil war in some countries because of global food shortages. With the rapid urbanization of Asian countries, we see a growing global dependence on a shrinking number of food producing nations, particularly with the world adding 78.5 million people each year.
"There will be ups and downs for prices along the way. A throttling back of America's efforts to develop ethanol so extensively or a move to use something besides corn to brew ethanol could take some of the upward pressure off corn prices.
"A real global recession could also cause food prices to back off for a time and it's also possible we'll see some form of US government intervention to curb food prices, particularly as the presidential election develops.
There were a lot of earnings reports this week -- if you weren't setting up some trades before the reports were released, you're probably digesting the numbers now. I had a look at 3M (NYSE: MMM) this morning. The famous Dow component, which competes with Johnson & Johnson (NYSE: JNJ) and DuPont (NYSE: DD), reported this past Thursday. Net sales increased 9%, but diluted earnings per share unfortunately took a whopping decline of 25%. However, you need to take a look at what caused this drop -- there was a gain in last year's quarter from the disposition of a European pharmaceutical business, as well as some other items. Excluding these elements, you'll find that earnings per share grew by 8%.
According to the company's release, 3M did rather well in the free-cash-flow department. Last year at this time, free cash flow came in at $276 million. This past quarter saw free cash flow grow to just under $700 million. I liked that; I also liked that most of the company's divisions reported double-digit profit growth. This is a healthy, blue-chip dividend player -- plus, 3M is comfortable with its previously stated forward guidance of at least $5.47 in adjusted earnings per share for 2008 (or, as the release put it, management believes net income will see an increase of "a minimum of 10% over 2007 earnings-per-share of $4.98"), and it beat the street this past quarter by three pennies, according to Briefing.com.
Here are some things to think about regarding 3M's stock. If it does earn close to $5.47 a share, then the company sports a forward P/E ratio of a little over 14. The yield on the shares is well over 2%. And, as of Friday's close, the price of the stock -- $77.82 -- is well off the 52-week high of $97 and a little ways off from the 52-week low of $72.05. Taken together, this 3M scenario seems like an interesting set-up for a decent trade. The stock looks like it will probably meander for a bit, but it nevertheless should be looked at.
Disclosure: I don't own shares in any of the companies mentioned here; positions can change at any time.
Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, DuPont is worth a review.
Change is rarely easy for any corporation, and when you're the size of DuPont, it's an undertaking of epic proportions.
DuPont (NYSE: DD) is the number three chemical maker in the United States. Analysts say DD's restructured business operations, which reduced its business units to five from eight, including an exit from the pharmaceutical and fibers business, should begin to produce results in 2008.
It was looking like we were about to have a good day at about 8:35 EST this morning after seeing flat CPI. But the day ended up long enough and bad that it feels like that CPI report came out a week ago because it was such a long day.
But today was all about Bear Stearns (NYSE: BSC), and you've already heard the news. If you have ever wondered what a run on the bank looks like and what a major institution on verge of implosion looks like, you just saw it today. Bear Stearns closed down over 45% to $30.85 on over 185 million shares. Free marketeers don't want a bailout.
It's bad enough out there that even someone out of the National Bureau of Economic Research is worried about a severe recession. If you want any good news on the day, it would be that the market didn't close on lows and it wasn't widespread panic falling out into every sector.
MOST NOTEWORTHY: Microsoft, IPC The Hospitalist Co and DuPont were today's noteworthy initiations:
Jefferies believes Microsoft's (NASDAQ: MSFT) bid for Yahoo (NASDAQ: YHOO) and more conciliatory tone towards regulators signals a shift in strategy from defense to offense. The firm started shares with a Buy rating and $33 target.
Wachovia believes IPC The Hospitalist (NASDAQ: IPCM) is well-positioned to gain share in the fragmented hospitalist market given its experienced management team, operating history, and proven track-record; shares were initiated with an Outperform rating at Wachovia and with an Outperform rating and $27 target at Credit Suisse.
DuPont (NYSE: DD) was initiated with an Outperform rating and $57 target at Credit Suisse, as they believe the company's number two seed position in North America looks secure.
Morgan Stanley initiated Liberty Entertainment (NASDAQ: LMDIA) with an Overweight rating; shares were also initiated with an Outperform rating at Wachovia.
Credit Suisse added shares of Elan Corp (NYSE: ELN) to its Focus List and started shares with an Outperform rating.
The advisor suggests, "For all of its innovation and growth prospects, DuPont trades at only about 14 times this year's expected earnings, more appropriate for a stodgy old industrial company like it once was." Here he looks at the firm's long-term prospects.
"In the late 1990's, earnings and the stock price both began to slip. Then, as DuPont began its third century, it transformed itself, spinning off its Conoco energy unit and selling its pharmaceutical and textile businesses.
"Driven by innovative products coming out of its laboratories, the company has been able to target growing markets in agriculture, biotechnology, electronics, specialty materials and safety, while maintaining its position in its traditional markets.
"Today, DuPont uses cutting edge science to produce a wide range of products and services for markets including agriculture, nutrition, electronics, communications, safety and protection, home and construction, transportation and apparel.
Even if the national headlines weren't already providing enough focus on the economy, plenty of economic data is due out as the month and the quarter wind down. U.S. economic data scheduled to be released this week include:
"Broad-based chemical, agriculture, and 'science technology' company 
Here are some highlights from this past week's 
Here are some highlights from this past week's 
There were a lot of earnings reports this week -- if you weren't setting up some trades before the reports were released, you're probably digesting the numbers now. I had a look at 
.gif){kind=logo}
Best & Worst in Money 2008: Most shocking financial collapse
Closing Bell: Stocks slump as AMD, AT&T, GM and Merck decline
Global Q&A: A rocky road, but profits ahead
