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3M Expects to Return to Profitable Growth in 2021

Macro headwinds, slow-moving restructuring plans, and mounting legal liabilities have weighed on 3M's performance since CEO Michael Roman took the top job in July 2018. On Tuesday, the industrial conglomerate reported earnings which gave investors more confidence in 3M's plan to return to profitable growth following sales and earnings declines the last two years. Organic sales grew 6% in the fourth quarter, margins expanded, and free cash flow increased 16%. 3M's Safety & Industrial segment (34% of sales) reported 13% revenue growth thanks to strong pandemic-related demand for its respirator masks and air filters, but other parts of the business improved as well. Transportation & Electronics (25%) returned to growth after a challenging last two years, and Health Care (25%) delivered a 7% sales [...]

January 27th, 2021|

IBM’s Latest Sales Decline Rattles Confidence in Turnaround; Spin-off on Track to Close by Year’s End

IBM shares slumped 10% on Friday following the company's fourth-quarter earnings report. IBM's organic sales fell 8%, marking the fourth straight quarterly decline, but investors were most concerned by a 7% drop in the Cloud & Cognitive Software segment. This high-margin division accounts for roughly 50% of IBM's gross profit and will become an even larger driver once the firm spins off its infrastructure services segment (25% of revenue) in late 2021. Cloud & Cognitive Software holds the foundational pieces of IBM's hybrid cloud and artificial intelligence (AI) strategy, which new CEO Arvind Krishna has bet the company's future on. Please see our October 2020 note for a detailed review of IBM's strategy.

January 22nd, 2021|

International Paper Plans to Reduce Dividend by 15-20% Following Spin-off of Printing Papers in Q3

In December, International Paper announced plans to spin off the firm's printing papers business into a standalone, publicly traded company. The spin-off is expected to be completed late in the third quarter of 2021, at which time shares in the spin-off will be distributed to International Paper investors. The transaction is expected to be tax-free for U.S. federal tax purposes. Printing papers account for close to 20% of International Paper's cash flow. As a result, International Paper expects to reduce its current dividend by 15% to 20% in proportion to the cash generated by the spin-off once the transaction closes. This will keep International Paper's payout ratio aligned with management's target of 40% to 50% of free cash flow.

January 21st, 2021|

Political Headwinds Remain an Overhang on Con Edison

The defensive utility sector has trailed the S&P 500 by more than 15% over the past year. Shares of Con Edison have been especially weak, slumping around 15% since mid-November to reach a level not far from their pandemic lows seen last March. With Con Edison's valuation looking unusually cheap compared to historical norms, some investors may be wondering if the stock is a value trap and could be at risk of changing its dividend policy. Management typically declares (and raises) Con Edison's first-quarter dividend on the third Thursday of January, so we will get an answer on the dividend as soon as tomorrow. Unless management expects a material deterioration in New York's regulatory framework, which seems unlikely at this [...]

January 20th, 2021|
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