3M Company (MMM) generated positive free cash flow in Q1 and provided full-year earnings per share guidance for 2025. Moreover, tariff effects won't be higher than 5%. It means the MMM stock could be cheap here.

MMM is at $135.38 in midday trading on April 22, 2025, up over 7.4% but still off a peak of $153.50 on March 25. Nevertheless, over the past 6 months, the stock has been relatively flat, as seen in the Barchart table below.

Given the company's higher earnings estimates, projections of free cash flow (FCF) and FCF margins, and analysts' price targets, MMM stock could rebound.

3M's Q1 Results

3M reported its Q1 results before the market opened on April 22. It said sales were off 1.0%, but its adjusted earnings per share (EPS) were up 10% to $1.88. 

Moreover, it maintained its prior EPS guidance of between $7.60 and $7.90 for 2025 from Q4, with a potential impact from tariffs delineated.

The company said its sensitivity to the effects of the Trump Administration's tariffs was limited to between -$0.20 and -$0.40 per share. That works out to between 2.6% and 5.2% of earnings:

   Midpoint EPS guidance:  $7.75 per share (i.e., ($7.60 + $7.90)/2),

   -$0.20 / $7.75 EPS = -2.58% and 

   -$0.40 / $7.75 EPS = -5.16%

Moreover, this is likely to be just a one-time effect, as future sales and earnings expectations will already have these tariffs incorporated into estimates.

The bottom line is that this is not a major effect on earnings guidance and could potentially be offset by higher growth. That could be why MMM stock is up so much today.

Analyst Estimates and Price Targets

Analysts surveyed by Seeking Alpha project $7.75 in EPS this year and $8.41 for 2026. That means on a forward next-12-month (NTM) basis, the stock is reasonably cheap:

  (NTM EPS:  ($7.75 x 0.75) + ($8.41 x .25) = $5.8125 + $2.1025 = $7.915 NTM EPS

This is +8.42% higher than the $7.30 in adj. EPS in 2024. Moreover, even after subtracting an estimated $0.30 (midpoint of the tariff sensitivity estimates), NTM EPS is still $7.615, or +4.3% higher than last year.

In addition, it means the valuation for MMM stock is not too high:

  $135.38 / $7.615 NTM EPS (tariff-adj.) = 17.78x

For example, based on Seeking Alpha's 5-year forward P/E Non-GAAP average of 15.65x, this puts MMM stock slightly over the average multiple (+13% higher).

In addition, analysts have higher price targets for MMM stock. For example, Yahoo! Finance reports that 19 analysts have an average price target of $149.30. Similarly, Barchart's survey shows a mean price target of $151.00.

So, the $150.15 average price from these sites shows at least a 10.9% upside in MMM stock.

One way to play this is to set a lower buy-in target price by selling short out-of-the-money (OTM) put options in nearby expiry periods.

Shorting OTM Puts

For example, the May 23 expiry period shows that the $132.00 strike price put contract has a $4.15 midpoint premium. That represents a 3.14% ($4.15 / $132.00) immediate yield to the investor who shorts these puts over the next month.

For example, an investor who secures $13,200 in cash and/or buying power with their brokerage firm can immediately earn $415 per put contract that is “Sold to Open.”

Note that this strike price is 3% below today's trading price and the delta ratio is 38.8%. That means that there is less than a 40% chance, based on past volatility, MMM will fall 3% to $132.00 over the next month.

Even if that happens, the investor's breakeven point is lower:

  $132.00 - $4.15 (income received) = $127.85, 

  or -5.93% below today's price of $135.91

This means it is an efficient way to set a lower buy-in price for new investors. For existing investors, this is a way to generate extra income, especially since MMM stock's annual yield is just 2.03% or so.

The bottom line is that MMM stock looks cheap here, based on its earnings guidance, analyst estimates, and using an OTM short-put strategy to buy in at a lower price.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.