The industrial giant is in restructuring mode and looks a good value now there’s more clarity around its dividend policy.
Wall Street analysts are updating their ratings and price targets on 3M (MMM 0.60%) in light of the consumer and industrial conglomerate’s recent first-quarter earnings report. Here’s a rundown.
Wall Street speaks
RBC Capital maintained an “underperform” rating but raised the price target to $87 from $78 amid concern that 3M’s implied dividend cut would lead to forced selling when it declared in May. Citi nudged its price target up to $100 while maintaining a “neutral” rating, and Barclays hiked its price target by $5 to $112 and maintained an “overweight” rating.
The most eye-catching update was from J.P.Morgan analyst Steve Tusa, who upgraded to “overweight” from “neutral” even as he only increased the price target by a dollar to $111. Two positive drivers he cited were the company’s valuation (14 times the midpoint of management’s earnings guidance) and management’s decision to finally bite the bullet and cut its dividend.
I agree with this reasoning and the argument that some of its end markets — notably electronics — are set to bounce this year.
Clarity and a turnaround in place
3M’s dividend cut makes perfect sense and removes uncertainty around the stock, as do the legal settlements over water contamination and combat arms earplugs. It also allows newly appointed CEO William Brown to engineer a turnaround in the company’s fortunes. 3M’s revenue growth and margin performance have disappointed in recent years. Still, the restructuring program launched last year appears to be progressing, as management expects significant margin expansion this year.
In addition, some of 3M’s continue to outperform in key end markets like electronics and automotive original equipment manufacturing (OEM).
Image source: Getty Images.
A stock to buy?
While there’s no guarantee that 3M’s performance will improve under Brown, the opportunity is there, the valuation is favorable, the dividend cut and legal settlements have taken some risk out of the stock, and 3M has positive momentum in 2024. Finally, the $111 price target is undemanding and realistic for investors.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends 3M and Barclays Plc. The Motley Fool has a disclosure policy.