WWe believe 3M stock (NYSE: MMM) is currently a better choice over Corning stock (NYSE: GLW), despite Corning’s revenue growth at a faster pace in recent years and its valuation. slightly better than that of MMM stock. . 3M is trading at around 3.0 times trailing revenue, compared to Corning’s 2.4 times. However, if we looked at other valuation metrics, the two companies appear to be priced similarly with a P / EBIT ratio of 13x and a P / E ratio of around 17x.
Although both companies have seen an increase in revenues in recent quarters, driven by the economic recovery, growth has been better for Corning, aided by strong demand for its gasoline particulate filters, given the adoption increased emissions regulations in Europe and China. However, there is more to the comparison. Let’s go back to take a closer look at the relative valuation of the two companies by looking at historical revenue growth as well as operating margin growth. Our dashboard 3M vs. Corning: industry peers; Which action is a better bet? has more details on this. Parts of the analysis are summarized below.
1. Corning’s revenue growth has been stronger
Now, Corning’s revenue growth over the past twelve months has outpaced 3M’s (23% vs. 11%), given strong demand for particulate filters for gasoline, among other drivers. Even if we looked at three-year average revenue growth, Corning’s three-year CAGR of 3.8% is only 0.6% higher for 3M.
For 3M, revenue growth was affected during the pandemic due to the closure of several offices, given closures and shelter-in-place restrictions, which resulted in lower demand for office products. Likewise, the demand for transportation products has also declined due to lower production of cars. This decline was offset by higher demand for its healthcare products, including masks.
For Corning, sales during the pandemic were largely affected by lower production at its facilities, lower capital spending affecting its optical communications business, and lower vehicle production affecting its technologies business. environmental.
However, now that the vaccination rate is on the rise and economies are gradually opening up, both companies have seen a strong recovery in their overall sales, a trend that is expected to continue in the near term. Looking ahead, 3M’s revenue is expected to grow 9% year-on-year to $ 35.2 billion in 2021, while Corning is likely to experience 22% revenue growth to $ 14.0 billion. dollars in 2021. Our Corning revenue dashboard provides more information on the company’s revenue.
2. 3M experienced better margin growth
3M’s operating margin of 22% over the past twelve months is better than 18% for Corning. Even if we looked at the latest three-year change in operating margin, 3M’s 0.3% figure is ahead of Corning’s -8.2% change. 3M’s operating margin of 22.2% in the past twelve months compares to 19.2% in 2019, before the pandemic. Corning’s current operating margin of 17.8% is lower than 3M’s, and compares to the 2019 figure of 13.7%. We expect margins for both companies to face some headwinds. contrary in the future. This can be attributed to inflationary pressures, higher wages and supply chain disruptions.
The net of everything
Now that more than half of the U.S. population is fully vaccinated against Covid-19, with a pickup in overall economic activity, vehicle production has increased, capital spending is on the rise, which is expected to contribute to growth overall income of the two companies. 3M is expected to see a rebound in demand for office products, continued growth in security products, while for Corning, demand for gasoline particulate filters will remain high, driving revenue growth in the near term.
Now, Corning’s current valuation is surely more attractive than 3M’s, and it has also demonstrated better revenue growth. However, when it comes to profitability, 3M beats Corning with higher margins currently, as well as better margin growth in recent years. Additionally, when you consider financial risk, 3M has a better debt and cash position, with debt as a percentage of equity of 18% vs. 19% for Corning, and cash as a percentage of assets of 11. %, compared to 8% for Corning.
Overall, we think 3M is a better choice of the two stocks, with a slightly higher valuation, but better earnings growth and lower risk. Through our 3M Rating of $ 205 per share, based on adjusted EPS of $ 10.07 and a P / E multiple of 20x, there is potential for a rise of more than 15% from its current levels of $ 176 . Note that Corning stock is attractively priced at current levels as well, but if one has to choose between the two, MMM seems like a better bet, based on the factors discussed above.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.