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Peloton stock more than doubles in 2 months: is the growth sustainable?

Peloton Interactive Inc (NASDAQ: PTON) has had a difficult time adjusting to the post-pandemic world – but it looks like things are finally starting to change for the better.

Shares of the connected fitness company have more than doubled over the past two months as financials improved on the back of its turnaround efforts.

Following such a surge, however, it makes sense to wonder if there is any upside left in Peloton stock. Let’s find out.

Return to sales growth could help Peloton’s stock

Peloton has already pushed its sales back into the growth trajectory.

In August, the exercise equipment company reported a 0.2% year-on-year growth in revenue for its fourth quarter – a marginal increase but an increase nonetheless.

Meanwhile, PTON has announced plans to cut its marketing costs by 19%.

Additionally, the Nasdaq-listed firm has lowered its global headcount by 15% and continues to trim its retail showroom footprint as well in pursuit of lowering its annual run-rate expenses by over $200 million by the end of fiscal 2025.

As evident, Peloton Interactive has found some religion in terms of cost structure – and moving further in that direction could help it command a higher price tag moving forward.

That’s why BMO analysts continue to rate Peloton stock at “market perform”.

Their $6.50 price target indicates potential for another 15% gain from here.

Still, PTON is not a suitable pick for income investors as it doesn’t pay a dividend at writing.

Peloton Interactive is fully committed to profitability

Investors should feel somewhat better about Peloton Interactive as its management has finally slammed the breaks on chasing growth at any cost and has committed to orchestrating a return to profitability first.

Other recent developments that make PTON a bit more attractive include the launch of a gear rental service in the United Kingdom and the recent refinancing of the balance sheet.

Lastly, despite the recent surge, Peloton stock remains priced for a disaster.

All in all, this New York-headquartered firm is a turnaround story that still adds a lot of risk to your portfolio, should you choose to invest in it.

On the other hand, though, it is now moving in the right direction and may offer lucrative long-term returns under the right management.

So, while we wouldn’t recommend going big when it comes to investing in Peloton shares due to their speculative nature, it may not be the worst decision to build a small position in Peloton stock at the current price if you do have the appropriate risk appetite.

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Soho House at 30: Can the nearly £3,000-a-year club turn cool into cash?

As I stepped into Soho House on Greek Street in London, the birthplace of the now-global hospitality phenomenon, I couldn’t help but sense novelty mixed with creative energy in the air.

The Greek Street location, nestled in the heart of London’s vibrant Soho district, exudes a charm that speaks to its nearly three-decade history.

Housed in a Georgian townhouse, it blends period features with contemporary design, creating an atmosphere that feels both timeless and current.

Yet beneath the polished surface and buzzing atmosphere, Soho House in 2024 faces mounting pressure to prove it can be more than just a perpetual loss-making enterprise.

After going public in 2021, the company has struggled to convince investors that its business model of high-end private membership clubs can translate into sustainable profits.

As it enters its 30th year of operations, Soho House finds itself at a crossroads.

At £2,950 for an ‘Every House’ membership, can it maintain its cool factor and exclusive appeal while achieving the growth and financial stability demanded by public markets?

Soho House’s numbers paint a complex picture

In its Q2 2024 earnings report, Soho House highlighted several positive trends.

Global membership grew to 204,000, while the waiting list of potential new members swelled to 111,000.

Membership revenues increased by 16% year-over-year. The company’s adjusted EBITDA grew to £26 million for the quarter.

Yet Soho House still declared an overall loss, as it continues to invest heavily in expanding to new locations around the world.

Recent openings included the company’s first South American outpost in São Paulo, as well as new houses in Mexico City and Portland.

The development pipeline for the coming years includes planned locations in New Delhi, South Mumbai, Manchester, Milan, Madrid, and Tokyo among others.

This aggressive growth strategy has left Soho House saddled with £502 million in debt as of early 2024.

The company’s stock price is down over 56% since its IPO in 2021, reflecting investor skepticism about its path to profitability.

In February 2024, short-seller Glasshouse Research published a scathing report on Soho House’s finances, drawing unflattering comparisons to the failed WeWork enterprise.

For CEO Andrew Carnie, who took the reins from founder Nick Jones in late 2022, addressing these financial pressures while preserving Soho House’s carefully cultivated brand presents a formidable challenge.

“We know that it’s a three- to five-year plan,” Carnie said in a recent interview, referring to the company’s efforts to achieve consistent profitability.

However, this timeline may test investors’ patience who have already endured years of losses.

Expansion amidst challenges

The company’s hybrid business model presents unique challenges.

While membership fees provide a stable revenue base, Soho House still faces the operational complexities and high fixed costs of running restaurants, bars, hotels and co-working spaces across its properties.

This leaves it exposed to economic headwinds and changes in consumer behaviour in ways that a pure subscription business is not.

Additionally, Soho House’s aggressive expansion has required heavy upfront investment in property development and renovations.

New house openings often generate losses in their initial ramp-up period before reaching maturity.

While this growth-focused strategy helped build Soho House into a global brand, it has come at the cost of near-term profitability.

The company has also had to navigate broader shifts in work and social patterns accelerated by the pandemic.

With more people working remotely, the appeal of dedicated co-working spaces and business-oriented club amenities may have diminished for some members.

Soho House has adapted by emphasizing its leisure and hospitality offerings, but this transition takes time and investment.

As Soho House enters its fourth decade, it faces no shortage of challenges.

Achieving profitability while fending off newer competitors and retaining its cool factor will require deft management and continued innovation.

The company’s enduring appeal and global scale provide a strong foundation to build upon, but the clock is ticking for Carnie and his team to prove that Soho House can be more than just a perpetual loss-making enterprise.

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China’s Q3 GDP growth beats expectations, but challenges remain

China’s economy grew 4.6% year-on-year in the third quarter, slightly exceeding the 4.5% forecasted by economists polled by Reuters.

However, the growth was marginally lower than the 4.7% increase recorded in the second quarter, reflecting ongoing challenges in the world’s second-largest economy.

On a quarter-to-quarter basis, China’s GDP expanded by 0.9% in Q3, up from 0.7% in the previous quarter.

Positive signs despite economic uncertainty

Sheng Laiyun, deputy commissioner of the National Bureau of Statistics, expressed optimism, stating that the national economy “showed positive signs of growth” in September.

Other economic indicators, such as retail sales and industrial production, also exceeded expectations, signaling that China may be on a path to recovery after recent economic struggles.

Beijing has been under mounting pressure to meet its annual growth target of “around 5%.” According to Tianchen Xu, a senior economist at The Economist Intelligence Unit,

Since real GDP expanded by 4.8% in the first three quarters, the full-year target of 5% is now achievable with extra stimulus in Q4.

Stimulus measures and property sector challenges

Chinese officials have introduced multiple stimulus measures over the past few months to revive economic growth.

In September, the central bank reduced the reserve requirement ratio by 50 basis points, allowing banks to lend more and inject liquidity into the economy. However, low consumer confidence and a struggling property market continue to weigh on growth.

Over the weekend, Minister of Finance Lan Fo’an stated that the central government has room to increase debt and expand the fiscal deficit, though no specific details on the size of the package were provided.

In a recent move, the Ministry of Housing announced an expansion of its “whitelist” program, aimed at supporting unfinished real estate projects.

The ministry intends to accelerate bank lending to these developments, with the goal of reaching 4 trillion yuan ($561.8 billion) by the end of the year.

Experts remain cautiously optimistic

Despite China’s ongoing economic challenges, Xu emphasized that the economy remains resilient:

China’s economy is not incurable, as some may suggest. The government’s commitment to shore up growth offers reason for optimism.

Analysts believe that with a coordinated stimulus push in Q4, China is well-positioned to meet its annual growth target and stabilize its economic outlook.

However, structural issues, such as weak consumer demand and the need for further property market reforms, could present obstacles in the coming months.

Economists warn that Beijing must continue to balance stimulus measures while avoiding excessive debt accumulation, a delicate task given the current economic environment.

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Japan’s inflation cools for the first time in five months amid subsidies

Japan’s core inflation rate slowed in September, marking the first decline in five months, driven by government utility subsidies aimed at alleviating price pressures.

According to data released by the Ministry of Internal Affairs on Friday, consumer prices excluding fresh food rose 2.4% year-on-year, down from 2.8% in August.

The result slightly exceeded economists’ consensus estimate of 2.3%.

The overall inflation rate also eased to 2.5% from 3.0% the previous month, with falling electricity and gas prices contributing significantly to the decline.

The government’s subsidies shaved 0.55 percentage points off the inflation rate, underscoring the impact of fiscal measures on the recent slowdown.

Central bank expected to hold steady on rates

The Bank of Japan (BOJ) is widely anticipated to maintain its interest rate at 0.25% during its upcoming policy meeting on October 31.

Despite the dip in inflation, the central bank has signaled that further rate hikes may still be on the table if inflation continues to align with its projections.

However, policymakers are cautious following criticism of their July rate hike, which triggered a market downturn.

Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute, suggested that the impact of subsidies on inflation may be temporary.

“If the subsidies are extended, CPI will come down, but it won’t change the underlying price trend,” Shinke said.

The BOJ’s decision is unlikely to shift significantly based on these developments, he added.

A core inflation measure, which excludes both fresh food and energy costs, rose slightly to 2.1% in September from 2.0% in August.

Service prices, considered a crucial indicator by the BOJ, gained 1.3% year-on-year, slowing from 1.4% in August, indicating some persistence in price pressures despite the headline slowdown.

Inflation outlook tied to subsidies and currency movements

The future trajectory of Japan’s inflation depends partly on whether the government extends its utility subsidies, currently scheduled to expire this month. If allowed to lapse, inflation could pick up again.

A report from Teikoku Databank revealed that food companies raised prices for nearly 3,000 items in October, further signaling inflationary pressures.

Currency fluctuations also remain a key factor.

The yen weakened to 150 against the dollar this week, driven by strong US economic data that dampened expectations of Federal Reserve rate cuts.

A weaker yen typically raises import prices, adding to inflationary pressures in Japan.

Meanwhile, Prime Minister Shigeru Ishiba is preparing a new economic stimulus package, potentially including cash handouts for low-income households, to ease price pressures and bolster public support ahead of the general election on October 27.

Economists suggest that the size of this extra budget could surpass last year’s package, further impacting the inflation outlook.

Wage growth lags behind inflation

Although Japan has experienced significant wage increases this year, driven by labor shortages and successful union negotiations, inflation continues to outpace real wage growth.

Real wages, adjusted for inflation, fell in August after modest gains over the previous two months, reflecting ongoing challenges for household consumption.

The government, which took office on October 1, has prioritized wage growth that exceeds inflation to support consumer spending and drive a sustainable economic recovery.

However, experts caution that achieving this balance will be critical for stabilizing the economy in the long term.

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Could Walmart’s tiny homes under $16,000 be the solution for affordable living?

In an unexpected twist for homebuyers, Walmart (WMT) is stepping into the tiny house market, providing affordable living options just as Amazon previously ventured into this space with trendy pop-up homes.

The retail giant is offering an “expandable prefab house” from Chery Industrial, priced at an attractive $15,900 for the 19-by-20-foot model.

This price point is notably lower than Amazon’s earlier listing of $19,000 for a similar tiny home, which included a temporary discount of $1,000 back in April; however, that model is currently unavailable on Amazon’s site.

For those seeking even greater savings, the manufacturer has a more compact version of the prefab house—a 15-by-20-foot model—currently retailing for just below $12,000.

Purchasing one of these homes requires some additional effort; buyers will need to secure a parcel of land, along with the necessary foundation, power supply, and water connection.

The house itself comes equipped with essential amenities, including a toilet, shower, cabinets, and door locks.

Upon delivery, the house arrives in a compact, folded state.

Buyers will need assistance to unfold the walls and ceiling to achieve the full structure. While furniture is not included, shoppers can conveniently find furnishings at Walmart or Amazon.

The tiny-home trend has gained momentum over the past couple of decades, driven by millennials who are increasingly rejecting sprawling “McMansions” amidst soaring housing prices.

One 24-year-old who embraced the tiny home lifestyle in her parents’ backyard managed to save enough for a $250,000 house and amassed a significant TikTok following sharing her journey.

In an era where affordability feels increasingly out of reach, Walmart’s tiny homes could very well redefine what it means to live large on a smaller scale, offering a practical pathway to achieving the dream of owning a home.

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China’s central bank launches $112 billion schemes to boost stock market

China’s central bank unveiled two new funding schemes on Friday, aiming to inject as much as 800 billion yuan ($112.38 billion) into its stock market.

These initiatives, introduced by the People’s Bank of China (PBOC), are designed to promote the “steady development” of the nation’s capital markets.

Boosting market stability through new tools

The newly launched swap and relending schemes, initially proposed in late September, are part of China’s broader strategy to stabilize its financial markets.

The country’s recent stock market bull run has started to lose momentum as investor optimism over government stimulus measures has turned to caution.

Despite this, the benchmark CSI300 Index saw a positive turnaround on Friday, closing the morning session 0.8% higher.

The swap scheme, valued at 500 billion yuan, allows brokerages, fund managers, and insurers to access liquidity from the central bank by using assets as collateral to purchase stocks.

According to the PBOC, 20 companies have already been approved to participate, with initial applications surpassing 200 billion yuan.

“The swap scheme will become a market stabilizer,” Xinhua Financial reported, explaining that demand for the tool will rise when stocks are oversold, though the appetite for it will diminish as markets recover.

In addition, this facility enables institutions to secure liquidity during market downturns without needing to sell shares at a loss.

Eligible assets such as bonds, stock ETFs, and holdings in CSI300 constituents can be swapped for more liquid assets like treasury bonds and central bank bills.

Relending scheme supports share buybacks

The PBOC also launched a 300 billion yuan relending scheme, which allows financial institutions to borrow from the central bank to fund share purchases by listed companies or their major shareholders.

With a one-year interest rate set at 1.75%, 21 institutions—including policy and commercial banks—are eligible to apply for the loans at the start of each quarter.

Listed companies and their shareholders can then borrow from banks at rates of up to 2.25% for share buybacks and purchases.

This scheme is an exception to China’s usual restrictions on bank lending in the stock market.

China’s financial regulators have urged swift implementation of these expansive policies to support the economy and its capital markets.

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Yen slides past 150 per dollar: Japan on high alert for further declines amid economic uncertainty

Japan’s currency officials have issued a warning as the yen has dropped beyond the critical threshold of 150 per dollar, signaling the risk of additional declines despite potential intervention measures.

Following the remarks of Atsushi Mimura, the country’s top currency official, the yen managed a slight recovery, climbing 0.2% to 149.86 per dollar.

According to a Bloomberg report, analysts monitoring the currency suggest it could depreciate further, possibly reaching 160 per dollar, influenced by robust US economic data that has led traders to temper expectations for Federal Reserve rate cuts.

Uncertainties in both Japanese and US monetary policies are contributing to fluctuations in the yen’s value.

Prime Minister Shigeru Ishiba indicated earlier this month that Japan is not prepared for additional interest rate hikes, though he later aligned his views with those of the Bank of Japan (BOJ).

Conversely, overnight indexed swaps suggest that the Fed is likely to implement at least two quarter-point rate cuts in the coming three meetings through January.

“The market is still over-pricing a rate cut from the Fed, so as we see expectations recede, I think the yen will gradually weaken,” stated Tohru Sasaki, chief strategist at Fukuoka Financial Group Inc. He added that the yen could reach the 160 mark as we head into the new year.

A further decline in the yen towards 150 or 155 could prompt the BOJ to consider earlier rate hikes than anticipated, according to Kazuo Momma, a former BOJ executive director, speaking at a Bloomberg conference last week.

He noted that the BOJ’s decision to raise rates in July was largely driven by the yen’s weakness.

Until now, officials from the finance ministry have largely refrained from commenting on the yen’s movement since October 7, when strong US jobs data triggered a selloff.

Their statements typically indicate the level of concern regarding the currency’s stability and the likelihood of intervention.

“There is a possibility that the dollar-yen will rise more, so Mimura probably made the comment to curb the yen’s further depreciation,” observed Teppei Ino, Tokyo head of global markets research at MUFG Bank Ltd.

He cautioned that the BOJ might be running out of time to intervene effectively.

Investor sentiment is also shaped by uncertainties surrounding upcoming elections in both the US and Japan.

The potential return of former President Donald Trump or the risk of Japan’s ruling Liberal Democratic Party losing its majority in the lower house adds to market volatility.

“If we break 152, I see 156 if we do not see any intervention from the Ministry of Finance,” predicted Shoki Omori, chief desk strategist at Mizuho Securities Co.

He noted that while verbal interventions may increase, the likelihood of Japan actively supporting its currency before the national election on October 27 seems low.

Market participants will closely monitor statements from central bank officials in both countries, particularly a speech by BOJ Deputy Governor Shinichi Uchida, representing Governor Kazuo Ueda.

However, some analysts believe significant movement in the currency is unlikely in the short term due to the prevailing cautious environment.

“With the Trump risk in mind, it seems that the environment will continue to make it difficult to sell the dollar in the short term,” wrote Yujiro Goto, head of foreign-exchange strategy at Nomura Securities Co. in Tokyo.

He added that while he anticipates a readjustment of the dollar-yen exchange rate toward the end of the year, it is likely to remain elevated around the 150 mark in the near term.

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USD/JPY forecast: technical signals point to more yen weakness

The USD/JPY exchange rate continued rising as the US dollar index (DXY) and bond yields rose to the highest point in months. The pair rallied to a high of 150, its highest level since August 1, and 7.5% above its lowest point this year.

Japan inflation and BoJ outlook

The USD to JPY pair continued its uptrend after Japan published encouraging inflation data on Friday.

According to the statistics agency, the headline Consumer Price Index (CPI) declined by 0.3% in September after growing by 0.5% in the previous month. This decline translated to a year-on-year increase of 2.5%, lower than the previous 3.0%. 

The core Consumer Price Index came in at 2.4% in September, higher than the median estimate of 2.3%. It was also an improvement from the previous increase of 2.8%.

These numbers mean that Japan’s inflation is moving in the right direction and that it will likely hit the BoJ target of 2.0% in the coming months.

Analysts expect that the Bank of Japan (BoJ) will embrace a wait-and-see approach before committing to interest rate hikes in the coming meetings. 

The BoJ, unlike other central banks, has embraced a relatively hawkish tone in the past few months. It initially hiked interest rates by 0.10% earlier this year and then another 0.25% in July.

The 0.25% hike led to major global volatility as investors started to unwind the Japanese yen carry trade. A carry trade is a situation where investors borrow a lower-yielding currency and invests in another higher-yielding one. 

For a long time, investors borrowed the negatively-yielding Japanese yen and invested in other assets in the United States, Australia, and other countries.

Therefore, with Japan’s economy weakening and with inflation moving in the right direction, the BoJ will likely maintain rates at the current rate for a while. 

This explains why Japan’s government bond yields have continued rising. The 10-year yield rose to 0.97% on Friday, its highest point on August 7, and a 32% increase from the lowest point in September. 

Federal Reserve actions

The USD/JPY exchange rate has also staged a strong comeback because of the actions of the Federal Reserve. 

In its last meeting, the bank decided to cut interest rates by 0.50%, the biggest rate in over four years. 

Since then, the US has published strong economic numbers. Data released earlier this month showed that the unemployment rate retreated to 4.1% in September, the lowest level in two months.

The economy created over 254k jobs in September while wage growth continued expanding during the month.

Meanwhile, US inflation fell at a slower pace than expected. The headline Consumer Price Index (CPI) dropped from 2.5% in August to 2.4% in September. Core inflation, on the other hand, remained unchanged at 3.2%.

The latest US economic data showed that core retail sales rose by 0.5%, while the headline figure rose to 0.4%. Initial and continuing jobless claims numbers were better than expected last week.

Therefore, the Federal Reserve will likely act in two ways at the next meeting: cut interest rates by 0.25% or hold them steady.

This explains why the US dollar index (DXY) has soared to $103.87, its highest level since August 2nd. It has risen by over 3.52% from its lowest point this year. 

US government bond yields have also jumped. The ten-year rose to 4.088%, its highest point since July 31st. Similarly, the five-year yield rose to 3.9%. 

USD/JPY technical analysis

USD/JPY chart by TradingView

The daily chart shows that the USD to JPY exchange rate staged a strong comeback this week. It has risen to 150, its highest point since July 31st, and 7.15% from its lowest point in August. 

The pair has moved above the 38.2% Fibonacci Retracement point. It has also crossed the 50-day and 100-day Exponential Moving Averages (EMA).

Also, the Relative Strength Index (RSI) has moved above the neutral point at 50, while the MACD indicator has crossed the zero line.

Therefore, the USD/JPY pair will likely continue rising as bulls target the next point at 153.70, the 23.6% retracement point.

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USD/CNY analysis: renminbi outlook after China’s GDP data

The China renminbi held steady against the US dollar after the country published the latest GDP, industrial production, and retail sales data. The USD/CNY exchange rate was trading at 7.1178, 1.54% above the lowest point this month.

China GDP data

The Chinese economy continued growing at a slower pace than expected after the National Bureau of Statistics (NBS) released the latest GDP data.

The numbers revealed that the economy expanded by 0.9% in Q3, missing the analyst estimate of 1.0%. It had grown by 0.7% in the second quarter.

This growth translated to an annual expansion of 4.6%, also lower than Q2’s growth of 4.7%. It was also in line with what analysts were expecting, but lower than the 5% target set by Beijing. 

China also published other strong economic numbers. Retail sales rebounded by 3.2% in September after growing by 2.1% in the previous quarter.

This is an important report because the recent leading indicators showed that the retail sector slowed down. For example, LVMH, the biggest brand in the luxury industry, said that its business continued to underperform the market in the third quarter.

Other Chinese online retailers like Alibaba, JD.com, and PDD Holdings also released relatively weaker numbers than expected. 

China’s retail sales have been weak because of the worsening labor market and as more people prioritised debt reduction to spending. In a note to Invezz, Maggie Wang, a 35-year-old lady said:

“The economy is not doing well, and so, we have deliberately reduced our spending this year. We are focusing on reducing our debt first until things improve.”

China retail sales, industrial production, and house prices

Retail sales likely did well because of the inflation situation in the country. Data released earlier this week showed that the headline Consumer Price Index (CPI) slowed from 0.4% to 0.0% on a MoM basis, and from 0.6% to 0.4% on an annual basis.

Another report showed that China’s industrial production made some modest improvement in September. It grew by 5.4% on an annual basis, higher than the median estimate of 4.6%. It expanded by 4.5% in August. The unemployment rate improved to 5.1% from 5.3% in the previous month.

The USD/CNY also reacted to the weaker housing data. The NBS said that the house price index dropped from 5.3% in August to 5.8% in September.

Therefore, these numbers mean that the economy will likely continue doing well in the coming months because of the recently announced stimulus package.

The government is working to boost spending and invest in strategic sectors. For example, it has unveiled over $70 billion in funds to save the real estate sector, which collapsed after Bejing changed its national policy on debt. In a note, analysts at Bloomberg said:

“Stronger-than-expected headline readings…do not mean China’s economy is on the mend. Looking ahead, we expect the economy to pick up speed, but only gradually.”

Federal Reserve rate cuts

The USD/CNY and USD/CNH exchange rates also reacted to the recent US economic numbers and their implications on the Federal Reserve.

Data released on Thursday showed that the headline retail sales rose from 0.1% in August to 0.4% in September, higher than the median estimate of 0.3%. Sales rose by 1.74% on an annual basis. 

Core retail sales, which excludes the volatile food and energy prices, rose from 0.2% in August to 0.5%in September, higher than the median estimate of 0.1%. 

Retail sales are important numbers for two reasons. First, the retail sector is one of the biggest employers in the US. Second, it is a good prediction of consumer spending, the biggest part of the American GDP. 

More data showed that US manufacturing production dropped by 0.4% in September, while industrial production fell by 0.3% during the month. These drops were worse than what most analysts were expecting. US initial jobless claims improved to 241k, while the continuing claims fell to 1.867 million. 

These numbers mean that the Federal Reserve will likely remain under pressure in the coming meetings. Analysts see the bank opting for a 0.25% rate cut instead of the 0.50% it slashed in the last meeting.

USD/CNY technical analysis

USD/CNY chart by TradingView

The daily chart shows that the USD to CNY exchange rate bottomed at 7.017 in September, and has rebounded to 7.12. It has jumped to its highest point since September 11, and moved above the 50-day moving average.

The Relative Strength Index (RSI) and the MACD indicators have pointed upwards, meaning that it has bullish momentum.

Therefore, the USD/CNY exchange rate will likely continue rising as bulls target the next key resistance point at  7.20. More downside will be confirmed if the pair drops below the key support at 7.017. 

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3M stock rally has stalled: brace for impact on Oct. 22

The 3M stock price has done well this year, making it one of the best-performing companies in the S&P 500 index. It has soared to a high of $140.70, its highest point since September 21, and by over 105% from its lowest point in 2023. This recovery has brought its market cap to over $74 billion.

3M turnaround approach

3M has done well this year as investors predict that its past woes are behind it going forward. As you recall, the company faced major headwinds in the past few years that have cost it billions of dollars.

In April, the company settled with public water suppliers for its PFAS or forever chemicals, agreeing to pay a $10.3 billion fine over 13 years. It agreed to pay $2.9 billion this year followed by $1.8 billion, $0.4 billion, $2.6 billion, and $1.6 billion in the next four consecutive years. The remaining amount will be paid in a reducing balance. 

3M also agreed to pay $6.5 billion for selling faulty earplugs that led to hearing loss to the US military. As with the PFAS settlement, the funds will be paid over time, with $1 billion of it being in the form of stock. 

The company has now taken measures to simplify and improved its business. The most important measure was to spin off Solventum, its healthcare business that provides solutions like advanced wound care, sterilisation assurance, surgical solutions, and oral care. 

3M still holds a substantial stake in Solventum, a company whose stock has surged by over 44% in the last three months, bringing its market cap to over $12.5 billion. As with other spin offs, it will likely continue reducing its stake in the company, and use the proceeds to reduce debt and pay fines. 

As part of the turnaround, the company has introduced Bill Brown as the new CEO. As part of his strategy, Brown wants to boost product development, simplify its operations by selling some underperforming divisions, and then focus to higher growth areas.

Brown has a history of turning around large companies, including Harris Corp and L3Harris, one of the top defense contractors in the US.

Slow growth across segments

In the last earnings call, he agreed with analysts that 3M’s portfolio of products was made up of ageing brands that were growing slowly. As such, as part of his strategy, he his open to implementing several large acquisitions. 

The most recent results show how these brands have contributed to slow growth. For example, in the safety and industrial division, the company generated an organic growth of 1.1% in the previous quarter. The three sections in this division: industrial adhesives, abrasives, and personal safety recorded low-single-digit growth.

The transport and electronics division had an adjusted organic growth of 3.3%, while its consumer segment had a negative organic growth of 1.4%. Therefore, the company needs to make major changes, in terms of R&D and acquisitions to boost this growth. 

Fortunately, the company’s stock and strong balance sheet of over $10 billion in cash will help it do some large acquisitions. The CEO said:

“While no acquisitions are on the near-term horizon, I will be taking a fresh, dispassionate look at our portfolio to determine if any assets have greater value owned by others, and along the same line, what assets might be a good fit for 3M.”

The next catalyst for the 3M stock will be its upcoming earnings scheduled on Tuesday, October 22nd. 

These results will help to show whether the company was making progress. Analysts expect that its revenue will come in at $6 billion, followed by $5.8 billion in the fourth quarter. 

Its annual revenue is expected to be $23.62 billion followed by $24.4 billion next year. This year’s numbers will be weaker than in 2023 because of the Solventum spin off.

3M has also continued to reward its shareholders. It has boosted its dividends in the last 65 years, making it one of the top dividend kings. It is also repurchasing substantial shares. It bought $400 million last quarter and plans to continue doing so this year.

3M stock price analysis

3M chart by TradingView

The weekly chart shows that the 3M share price has been in a strong bull run in the past few years. This trend started after it bottomed at $68.43 in August last year.

3M shares have formed a golden cross pattern as the 50-week and 200-week moving averages have crossed each other. This trend means that bulls are in control for now.

The stock is also forming a cup and handle pattern, a popular bullish sign. Therefore, the 3M share price will continue rising as bulls target the key resistance point at $150, its highest point in May 2021.

Read more: Institutional investors load up on 3M and UiPath stock

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