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3M is facing turbulence as the Trump administration meddles with its operations, making MMM stock unpopular among investors despite their products being involved in the fight against COVID-19.
On April 2, the White House confirmed that it might adjust previous guidelines that discouraged non-health workers from wearing medical face masks. The new change will come as ‘guidance’ from the CDC. However, President Trump said that, for now, it would not be made mandatory. Medical-grade masks supplies are running low in the coronavirus hot spot areas. As a result of the current shortages, this new guidance is expected to affect the cloth and non-medical face coverings only. There is no surprise that such a situation may have its impact on 3M (NYSE: MMM) business as the company produces masks.
The White House and CDC hesitated to advise on the new mask issue due to the fears that people would stop taking social distancing measures seriously. Birx believes that social distancing will help contain the spread of the coronavirus in the U.S.
“We don’t want people to feel like ‘oh I’m wearing a mask, I’m protected, and I’m protecting others.”
As the doctor explained the idea behind the new precaution of cloth masks, President Trump offered his unproven and unfounded interpretation of the information:
“If people wanted to wear them, they can. In many cases, the scarf is better; it’s thicker.”
While mask-wearing is routine in Japan and South Korea even outside pandemic times, Western countries are still hesitant to adopt this practice. Earlier, officials sent out confusing messaging urging Americans to give medial masks to health workers saying that they do not protect in everyday situations, but they are now retracting their statements.
Late in February, U.S. Surgeon General Jerome Adams tweeted:
The messaging may have proved useful in the earlier days when Americans were hoarding masks for personal use leaving health workers with inadequate supply. On April 2, health officials insisted that using masks should not substitute physical distancing measures. Birx said:
“Just remember it’s not a substitute for everything that we’re asking people to do!”
3M Stock Not A Good Buy
MMM or 3M (NYSE: MMM) is a manufacturing conglomerate that generates minimal revenue from the items that will be used in combating the COVID-19 health crisis. Despite manufacturing face masks that are currently on high demand, clients might turn elsewhere, resulting in a drop in the 3M shares. Now, the company’s valuation is not attractive to investors.
3M has inadequate exposure to the battle against the pandemic. CEO Mike Roman said that his firm could generate $250 million of revenue from the sale of respiratory products to fight the novel coronavirus. Roman expects revenue to resemble that gained during the H1N1 outbreak in 2009-2010. But, analysts believe that the company can generate over $2 billion from the current crisis.
But, the 3M stock may not surge since the company pledged not to increase prices on its N95 masks that are in most demand currently. Also, the other products like hand sanitizers and disinfectants are available elsewhere at lower prices. The stock may also not surge since $2 billion is a small amount of money for 3M that reported total revenue of $32.14 billion in 2019.
The pandemic has also made it hard for manufacturers like 3M to trouble obtaining the needed supplies. The Dallas Fed’s Manufacturing Index registered an all-time low of -70 in March compared to +1 in February. Thus, MMM stock is most likely not going to do well during the current health crisis.
Trading at 15 times analysts’ average 2020 EPS estimates and 2.5 times its sales, 3M does not have a particularly low valuation. Given all these issues, investors are considering selling their shares of 3M.
3M-Trump Masks Dispute
The U.S. now needs over 300 million N95 masks every month, according to the Department of Health and Human Services (DHSS). But, just 35 million of the masks are made in the U.S., and the countries where they are produced want to use them locally for their healthcare workers.
On April 3, 3M said that the Trump administration’s request for the company to stop exporting respirator masks could make supplies to dwindle in the United States. The company issued this warning after President Trump invoked the Defense Production Act to force 3M to increase the production of the desperately needed respirator masks.
Trump’s order issued on April 2 directed Homeland Security Secretary Chad Wolf to:
“use all authority available under the Act to acquire, from any appropriate subsidiary or affiliate of 3M Company, the number of N-95 respirators that the Administrator determines to be appropriate.”
In an April 3 statement, 3M said that the Trump administration:
“Also requested that 3M cease exporting respirators that we currently manufacture in the United States to the Canadian and Latin American markets. But, there are, however, significant humanitarian implications of ceasing respirator supplies to health care workers in the markets where 3M is a critical respirator supplier.”
The White House allegedly tried to force 3M to export 10 million N95 respirator masks from its Singapore factory to the U.S. instead of distributing them in the Asian market. Such a move may create tension between America and those countries that would not favor multi-national companies like 3M going forward.