3M Stock Soared in Q1 While the S&P 500 Struggled. Here's Why.

Given the tumultuous events in April, it's easy to forget that 3M (NYSE: MMM) stock is actually up on the year; at least, it is at the time of writing! That's due to an impressive first-quarter performance of 13.8%, according to data provided by S&P Global Market Intelligence.

3M is on the recovery track

The increase reflects a growing confidence in CEO Bill Brown's plans to turn the company's fortunes around. Over the last decade, the company has been dogged by weak sales growth, a lack of innovation and new product introductions (NPI), uncertainty around its legal and financial exposure to its previous production of PFAS chemicals, and allegedly faulty combat arms earplugs. On top of that, the previous management spent a lot of time and money investing in the healthcare business, with little to show in overall improvement.

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The good news is that many of these issues are improving, and where it's too early for improvement, Brown has plans in action. For example, the healthcare business was spun off as Solventum last year, and 3M has made settlements over PFAS and combat arms earplugs, giving investors and management clarity around the payments to come.

With these distractions out of the way, management can better concentrate on improving the business. As such, Brown has laid out several initiatives and opportunities for improvement in 3M's execution. They include a renewed focus on research and development to generate NPIs, significantly improving the efficiency of its asset utilization and reducing its working capital requirements. In addition, Brown has been candid about the need to improve on-time full deliveries to customers, notably in the safety and industrial segment.

Most of these things are blocking and tackling initiatives meant to generate operational efficiency. It's not the sexiest of investment propositions. Still, it's similar to the kind of work Larry Culp did in improving operations at the former General Electric, ultimately producing stellar returns for investors.

Image source: Getty Images.

Where next for 3M?

The company's financial targets for 2027 call for growth in excess of its industry, accompanied by margin expansion, leading to high-single-digit earnings growth and solid free-cash-flow generation.

Some support from the economy would help, and before recent events, there were signs of improvement in its electronics and semiconductors end markets, in particular. If the economy can get back on the right track, 3M investors can look forward to a combination of decent top-line growth and ongoing margin expansion driven by the opportunity to improve operational performance -- a value opportunity.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 3M. The Motley Fool has a disclosure policy.