Option Trade – 3M Co (NYSE:MMM) Calls Monday, April 24, 2017

** OPTION TRADE: Buy the MMM JUNE 16 2017 195.000 CALL at approximately $2.30. Place a pre-determined sell at $4.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.95.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Industrial goods manufacturer, 3M Co (NYSE:MMM) is set to release its earnings data on Tuesday, April 25, before the market opens.

3M last announced its quarterly earnings data on Tuesday, January 24th. The conglomerate reported $1.88 earnings per share (EPS) for the quarter, topping the consensus estimate of $1.87 by $0.01. The firm earned $7.33 billion during the quarter, compared to analysts’ expectations of $7.35 billion. 3M had a net margin of 16.77% and a return on equity of 43.82%. The company’s revenue for the quarter was up .4% compared to the same quarter last year. During the same period in the prior year, the company posted $1.80 earnings per share. On average, analysts expect 3M to post $8.63 EPS for the current fiscal year and $9.39 EPS for the next fiscal year.

In the last reported quarter, 3M’s earnings beat the Consensus Estimate by a penny. In the trailing four quarters, the company topped earnings estimates on three occasions with an average positive earnings surprise of 1.9%.

3M is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings—with the most up-to-date information possible—is a pretty good indicator of some favorable trends underneath the surface for MMM in this report.

In fact, the Most Accurate Estimate for the current quarter is currently at $2.08 per share for MMM, compared to a broader Consensus Estimate of $2.07 per share. This suggests that analysts have very recently bumped up their estimates for MMM, giving the stock a Earnings ESP of 0.48% heading into earnings season.

3M (NYSE:MMM)’s 50-day moving average price is $190.57 and its 200 day moving average price is $179.11. 3M has a 12 month low of $163.17 and a 12 month high of $193.50. The firm has a market capitalization of $113.97 billion, a P/E ratio of 23.43 and a beta of 1.04.

Influencing Factors to Consider               

3M continues to deliver sustainable increase in earnings and free cash flow, benefiting from its long-term strategy of accelerating investments in high-growth programs. The company’s ability to convert high R&D spends into up-cycle market share gains and strong pricing powers are the reasons behind its success. Organic growth remains the first priority of the company as it continues to invest in infrastructure and commercialization capability.

3M has also initiated some prudent steps to strengthen and focus on its core portfolio of businesses. Since 2012, the company pruned its businesses from 40 to 26, thereby improving customer relevance, productivity and speed through a leaner operating structure. At the same time, 3M maintained a steady investment in R&D to develop innovative products. A focused operating platform is anticipated to yield higher return on investments in the impending quarter.

The company expects to further leverage its balance sheet to provide higher returns to shareholders. At the same time, it is continuing with its portfolio restructuring efforts by divesting assets that no longer fit its strategy and investing in other lucrative markets. During the quarter, 3M entered into a definitive agreement with Johnson Controls International plc to acquire the latter’s operating unit, Scott Safety. The deal, worth $2.0 billion, is expected to close in the second half of 2017. The acquisition will enable 3M to expand its portfolio within the Safety and Graphics business to provide a broader array of safety products and solutions to customers worldwide.

3M expects the transaction to be accretive to adjusted earnings by 10 cents per share in the first year of its operation. Although the deal is likely to have a minimal effect on the impending quarterly results, it is expected to have attracted similar deals and contracts in the quarter and boost revenues.

Analysts and Hedge Funds Opinions

Jefferies Group LLC upped their price objective on shares of 3M from $210.00 to $219.00 and gave the stock a “buy” rating in a report on Wednesday, April 19th.

Also, 3M Co‘s stock had its “overweight” rating reiterated by equities research analysts at Barclays PLC in a report issued last Wednesday. They currently have a $201.00 price target on the conglomerate’s stock, up from their prior price target of $200.00. Barclays PLC’s target price points to a potential upside of 5.15% from the company’s current price.

Several other brokerages have issued reports on the company….

  • Stifel Nicolaus increased their price target on shares of 3M from $187.00 to $190.00 and gave the company a “hold” rating in a research report on Wednesday, January 25th.
  • Vetr upgraded shares of 3M from a “sell” rating to a “hold” rating and set a $183.19 price target for the company in a research note on Friday, April 14th.
  • Finally, Zacks Investment Research upgraded shares of 3M from a “hold” rating to a “buy” rating and set a $213.00 price target on the stock in a research report on Wednesday, March 29th.

Two investment analysts have rated the stock with a sell rating, five have given a hold rating and five have issued a buy rating to the stock. 3M currently has an average rating of “Hold” and an average price target of $190.50.

West Oak Capital LLC increased its stake in 3M Co by 100.6% during the first quarter, according to its most recent Form 13F filing with the Securities and Exchange Commission (SEC). The fund owned 2,758 shares of the conglomerate’s stock after buying an additional 1,383 shares during the period. West Oak Capital LLC’s holdings in 3M were worth $528,000 at the end of the most recent quarter.

Several other hedge funds have recently modified their holdings of the company……

Confluence Investment Management LLC raised its position in shares of 3M by 4.2% in the first quarter. Confluence Investment Management LLC now owns 481,445 shares of the conglomerate’s stock valued at $92,115,000 after buying an additional 19,587 shares during the period.

 Peachtree Investment Advisors Inc. raised its position in shares of 3M by 2.3% in the first quarter. Peachtree Investment Advisors Inc. now owns 2,240 shares of the conglomerate’s stock valued at $429,000 after buying an additional 50 shares during the period.

 Harvey’s Options Volatility Indicator


Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the MMM JUNE 16 2017 195.000 CALL at approximately $2.30. Place a pre-determined sell at $4.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.95.

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