ABB vs. 3M: Which Industrial Machinery Stock is a Better Buy?

Headquartered in Zurich, Switzerland, ABB Ltd (ABB) manufactures and sells electrification, industrial automation, and robotics and motion products to customers in utilities, industry, and transport, and infrastructure worldwide. In comparison, 3M Company (MMM) in St. Paul, Minn., develops, manufactures, and markets various products worldwide. It operates through four business segments: Safety and Industrial; Transportation and Electronics; Health Care; and Consumer.

The resurgence of COVID-19 cases and rising concerns over its highly transmissible omicron variant have cast a pall over the global economic recovery. In addition, high inflation is keeping the market volatile. However, the continuing vaccination drive and supportive fiscal and monetary policies have boosted the industrial machinery sector’s growth. Moreover, the  $1 trillion infrastructure bill, which was passed on November 15, and increasing innovation in the industry, are expected to help the sector grow significantly in the coming months. So, both ABB and MMM should benefit.

ABB’s stock has gained 34.8% in price over the past year, while MMM has returned 3.8%. Also, ABB’s 29.7% gains year-to-date are significantly higher than MMM’s 1% returns. Furthermore, ABB is the clear winner with 5% gains versus MMM’s negative returns in terms of the past months’ performance.

Click here to check out our Industrial Sector Report for 2021

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On September 30, 2021, ABB launched an innovative all-in-one electric vehicle charger, which provides the fastest charging experience on the market. So, the company might witness high demand for the product due to rapid electric vehicle (EV) adoption worldwide.

On November 5, 2021, MMM introduced its 3M Xtract Cubitron II 710W Net Abrasive Disc, which provides twice the life and cut rate, while removing up to 97% of dust particles as it sands metal, wood, and composite surfaces.

Recent Financial Results

ABB’s revenues increased 7% year-over-year to $7.03 billion for its fiscal third quarter, ended September 30, 2021. The company’s operational EBITA grew 35% year-over-year to $1.06 billion. However, its net income came in at $652 million, representing an 86% year-over-year decrease. Also, its EPS was $0.33, down 85% year-over-year.

MMM’s sales increased 7.1% year-over-year to $8.94 billion for its fiscal third quarter, ended September 30, 2021. However, its operating income declined 6.3% year-over-year to $1.78 million, while its net income has remained flat at $1.43 billion on a year-over-year basis. Also, its EPS has remained flat at $2.45 on a year-over-year basis.

Past and Expected Financial Performance

ABB’s revenue and EPS have grown at  CAGRs of 11.8% and 38.4%, respectively, over the past three years. Analysts expect ABB’s revenue to increase 6.1% for the quarter ending December 31, 2021, and 10.8% in fiscal 2021. The company’s EPS is expected to grow 46.2% for the quarter ending December 31, 2021, and 43.9% in its fiscal year 2021. Furthermore, its EPS is expected to grow at a 14.6% rate per annum over the next five years.

In comparison, MMM’s revenue and EPS have grown at CAGRs of 2.5% and 10.7%, respectively, over the past three years. The company’s revenue is expected to increase 0.4% for the quarter ending December 31, 2021, and 9.9% in its fiscal year 2021. Its EPS is expected to decline 13% for the quarter ending December 31, 2021 but grow 12.9% in its fiscal year 2021. Also, MMM’s EPS is expected to grow at an 8%  rate per annum over the next five years.

Profitability

MMM’s trailing-12-month revenue is 1.24 times  ABB’s. MMM is also more profitable, with gross profit and net income margins of 48.02% and 16.76%, respectively, compared to ABB’s 32.74% and 6.40%.

Furthermore, MMM’s 44.80%, 10.95%, and 15.55% respective ROE, ROA, and ROTC are higher than ABB’s 13.75%, 5.23%, and 9.03%.

Valuation

In terms of forward EV/EBITDA, ABB is currently trading at 13.28x, which is 6.8% higher than MMM’s 12.44x. However, MMM’s 3.26x forward EV/S ratio is 24.4% higher than ABB’s 2.62x.

POWR Ratings

ABB has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. In contrast, MMM has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

ABB has a B grade for Growth, which is consistent with analysts’ expectations that its EPS and revenue will increase in the coming months. In comparison, MMM has a D grade for Growth, which is in sync with analysts’ expectations that its EPS and revenue will decline in the near term.

In addition, ABB has a C grade for Momentum. This is justified given ABB’s 3.1% returns over the past six months and 22.1% gains over the past nine months. However, MMM has a D grade for Momentum, which is in sync with its 13.3% decline over the past six months and 2.4% decline over the past nine months.

Of the 78 stocks in the B-rated Industrial - Machinery industry, ABB is ranked #3. In comparison, MMM is ranked #40.

Beyond what I have stated above, we have also rated the stocks for Value, Quality, Stability, and Sentiment. Click here to view all the ABB ratings. Also, get all the MMM ratings here.

The Winner

The industrial machinery sector is expected to grow with increasing construction and infrastructure activities this year and beyond. While both ABB and MMM are expected to benefit, we think it is better to bet on ABB now because of its better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Industrial - Machinery industry here.

Click here to check out our Industrial Sector Report for 2021

MMM shares were trading at $176.11 per share on Thursday morning, up $0.07 (+0.04%). Year-to-date, MMM has gained 3.95%, versus a 26.60% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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