3M Shares Get Punished After Slashing 2019 Earnings


After a terrible 2018 which saw 3M stock lose 20%, 2019 was shaping up much better, until Thursday that is. The stock lost most of their 15% year to date gain on a single day.

It’s usually not nice to disappoint the street with your earnings estimates. Current estimates become digested by the market so to speak, and any deviations from that will require further digestion as the market reassesses their love for the stock.

When the difference here is a pretty large one, and it’s focused not just on the next quarter but, in the case of 3M, the rest of the year, that can be a big pill to swallow and it may not go down very easily. The announcement that 3M made after the market closed on Wednesday was a big pill indeed.

Most of the damage, if not all of it, occurs during the off-hours trading session, and it’s actually preferable for this to happen during these much lower volume trading hours since we really want to minimize the effect of these announcements upon the stock and the market in general.

We want to limit the frenzy among human traders that these announcements can cause and especially don’t want computerized program trading to get into a frenzy, which in spite of controls is more fragile. The flash crash is good evidence of what can happen if computer trading starts to go crazy, and a major role of stock markets is to do their best to promote orderly trading and avoid mass disorder.

By the time the NYSE opened on Thursday, the main damage was done, and 3M stock experienced a gap down, and a pretty significant one. The stock closed regular trading on Wednesday at $219.08, and the next morning it opened up at $197.54, and went down from there.

3M Stock Hasn’t Really Been That Exciting Over the Last Couple of Years

3M stock struggled quite a bit last year and ended up booking a 20% loss. 3M’s ride down was not just a matter of it following the market in its decent down during the fourth quarter of 2018, as 3M was consistently bad throughout the year, with all four quarters seeing declines in the stock’s price.

2019 looked more promising though, as 3M followed the market up, although they did fall right off the table Thursday. Their 15% gain year to date was down to just 3% at the open, and the market piled on and took the rest of this away, leaving 3M right at where they started the year.

Given that the broader market is still up 17% year to date, their 15% was at least competitive, but no gain at all certainly isn’t. Some may still believe that 3M tracks the stock market, and may have been thinking that this was happening again in 2019, but it didn’t track it very well in 2018 and now isn’t in 2019 either.

3M’s big losses on Thursday did manage to get the Dow well in the red to start the day, and when you are on an index with just 30 stocks, and you suffer double digit losses, this is to be expected. The overall sentiment with the Dow and the market as a whole remains stable in spite of this, with the S&P and the Nasdaq both trading fairly flat, and the Dow rebounding nicely after investors shook off 3M and concentrated on stocks in the Dow that did not shock us last night in not a good way.

Analysts Haven’t Really Liked 3M Much Lately Either

In spite of it managing to become buoyed nicely in the year to date leading up to this earnings disappointment, most analysts have not been all that excited about its current prospects, with only 37% rating 3M as a buy, compared to the 59% that the Dow averages. It appears that this run up in 3M’s price has been more a matter of their tagging along with the market, but after Thursday, they are no longer holding hands as investors threw them to the ground.

3M cut their earnings projection for 2019 by 11%, which is an alarming number, and one that certainly would have a serious impact upon a stock’s price. They are also planning on laying off 2,000 employees, and while this can benefit a company by cutting costs, it’s not a move that suggests the growth that stock investors love.

When the market sets a price for a stock, it includes the full measure of all influences upon it, and among these influences are earnings projections. The earnings a company has already put in only really matters in comparison to what was expected, and what is to be expected matters even more to investors.

Seeing this forecast take a tumble and having that apply to the rest of the year is seen by some as a particular concern, and these are the people who are selling right now. Events of this magnitude affect the mood of investors overall, and those who may be close to selling anyway may have a disappointment like this put them over the edge as well.

Price movements of stocks are really a result of changes in the magnitude and direction of the mood of the market toward them, and the mood has certainly turned sour with 3M. Earnings growth moves in trends, and therefore this result may speak to periods beyond this year as well, as the company struggles.

We don’t just want to be investing merely based upon the recommendations of analysts, but knowing what their consensus is toward stocks of interest to us can be useful knowledge to help shape our decisions. In this case, seeing 3M as among the least desirable stocks in the Dow looks spot on.

Eric Baker

Editor, MarketReview.com

Eric has a deep understanding of what moves prices and how we can predict them to take advantage. He also understands why so many traders fail and how they may help themselves.