Earnings Season Is Underway

Two of our companies reported solid results this morning, giving our Buy List an excellent start to the 4Q21 ¬†earnings season. Now that the market smoke has cleared a little, let’s take a slightly closer look at the numbers and Wall Street’s response:

3M (MMM) reported $2.31 per share in earnings, down 4% from the comparable year-ago period but 12% above what analysts were braced to see. Admittedly, a lower effective tax rate was a boost, but management is still squeezing bottom-line results out of what amounts to flat sales. Inflation hasn’t been as big a drag on gross margins as feared and CEO Mike Roman had encouraging things to say about a strong December. While he held off on providing a 2022 outlook before February, he does expect growth this year . . . especially if inflation is peaking.

The stock recovered nicely after a tough market day, making me suspect it’s going to take a lot of negativity to keep it down. There’s room on the upside here. Buy MMM under $175. My target is $200.

Johnson & Johnson (JNJ) earned more straightforward applause, jumping nearly 3% today on less ambiguously constructive results. Earnings per share came in at $2.13, up 14.5% from last year, and sales surged 12.3% . . . roughly in line with expectations.

Management is looking to raise the top line 7.7% this year and translate that energy into 9.2% earnings growth. That’s a pleasant surprise to many on Wall Street, implying an extra $0.30 in profit per share in the coming year above consensus. Provided long-term interest rates do not go sharply higher, I look for the stock to continue to do well in a world where investors favor traditional value names with appreciable growth. JNJ is a buy below $162. My target is $180.