Prediction: 3M Will Reward Patient Investors

3M's (NYSE: MMM) turnaround under Chief Executive Officer Bill Brown continues, and the latest results for the industrial company confirm operational progress even as it battles some uneven end markets. There's a value case for buying the stock, but investors might need to be patient before it becomes fully apparent. Here's why.

The value case for 3M stock

The recent third-quarter earnings report saw management upgrade its full-year 2026 outlook for adjusted earnings per share to $9.10-$9.15 from $8.80-$8.95, while maintaining organic sales growth forecast to rise more than 3.5%. The growth may not sound like much, but consider that the cadence of 3M's organic year-over-year sales growth by quarter this year will be 1.2%, 2.3%, 3.3%, and then a bit more than 4% in the fourth quarter to hit the target.

Moreover, the accelerating growth has come in a year of mixed end markets for the company. We already knew, from industrial supplier Fastenal's results, that the heavy equipment, data centers, aerospace, and machine products sectors were improving in 2026, with some weakness in the automotive sector. Those themes played out in 3M's third quarter, with consumer electronics also adding to automotive weakness.

In other words, some of the more interest rate-sensitive sectors are underperforming. Consumer electronics and autos are in the transportation and electronics segment, and there's no surprise in seeing softness in other areas like home improvement.

Data source: 3M presentations. Table by author.

In other words, 3M has faced mixed end markets in 2026, as well as higher costs due to soaring oil prices -- management now expects an inflation impact of $185 million, up from a previously anticipated range of $150 million to $175 million. Still, with all these things going on, the company's growth rate has improved through 2026, and it's on track for mid-teens percentage earnings growth in 2026.

Management also confirmed it's poised to deliver $4.8 billion in adjusted free cash flow (FCF), which would put it at a full-year price-to-FCF multiple of 18.4, a favorable valuation.

3M's operational improvements

The most impressive aspect of the improvements at 3M in recent years has been Brown's drive to revitalize its new product introductions (NPI), an area where 3M had fallen behind. He outlined 87 NPIs in the third quarter, with 3M anticipating 350 NPIs in 2026.

The success of NPI isn't just seen in improved sales volumes; Brown noted that "our ability to drive price right now is partly from the new products." Without the NPIs, 3M may not be able to deliver the expected sales volume growth in an inflationary environment.

Image source: Getty Images.

Why investors need to be patient

The improvements are real, and the valuation is attractive. Still, before buying the stock, investors need to consider that the company has substantial cash draws due to required payments for legal settlements. For example, the $4.8 billion in adjusted FCF does not include the settlements it still needs to pay due to combat arms earplugs litigation and remediation for U.S. public water suppliers related to PFAS (otherwise known as forever chemicals) contamination.

Although the $4.8 billion in adjusted FCF is the best way to look at 3M, the reality is that 3M has to pay $2.6 billion in 2027 and $1.6 billion in 2028 in PFAS settlements. After that, the settlements are much less onerous and total $3.3 billion between 2029 and 2036.

In other words, the 2027 and 2028 cash flow drain could hang over the stock during the next couple of years. Still, long-term investors who are focused on the adjusted FCF figure as a run rate estimate and who appreciate the margin, pricing, and NPI improvements at 3M under Brown's leadership will simply see a decent value opportunity in the stock.

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