3M (NYSE: MMM) is turning a corner. The company wasn’t hurt by ailing business so much as lawsuits related to legacy businesses that are now primarily in the past. The settlements may still be appealed or amended, but the $18-odd billion in damages is close to the final payments expected. The takeaway is that headwinds are diminishing for this well-positioned industrial giant, and now, catalysts are in play.
Among the catalysts is Bill Brown's appointment to the CEO suite. Mr. Brown comes from L3Harris Technologies (NYSE: LHX) and brings a wealth of experience and knowledge to the business. His appointment and receding headwinds have the analysts raising their ratings and targets, leading this market higher.
Upgraded Analyst Ratings Boost 3M's Market Prospects
There is a profound shift in the analysts' sentiment. Since January, the series of sentiment upgrades and price target revisions have lifted the consensus rating from Reduce to Hold and the high-end of the Hold range, verging on Moderate Buy. The price target is still down compared to last year but up significantly off the lows, leading the market. The consensus projects an 11% upside, with a high-end potential of 30%-40% upside. This could push the market above the long-term moving average, break critical resistance, and reach an 18-month high.
The five latest updates are the most promising. Starting with HSBC in May, the stock has received four upgrades to Buy and five price target revisions ranging from an above-consensus target of $115 to the new high target of $140. HSBC cited the company's quality and easing headwinds, while Vertical Research makes note of persistent uncertainties but views risk as to the upside. Bank of America and Wolfe Research are baking on the new CEO, whose reputation includes operational intelligence and savvy, practical application. His last project is highlighted by outperformance, which is now expected for 3M.
3M's Dividend Cut Not a Worry for Investors
Dividend cuts are never a good thing in the eyes of investors, but there are mitigating factors for 3M. Aside from the fact that the earplug and forever-chemical litigation was a cloud over the company that might have led to a cut, the cut is because of the recent spin-off of Solventum (NYSE: SOLV). The spin-off created a stand-alone healthcare company and was paid as a dividend. The cut to 3M’s payment aligns the distribution with payout-ratio targets and keeps it healthy. The yield is also healthy at nearly 3%, with shares trading at $100.
The balance sheet is in good shape despite the settlement payments. Payments have yet to begin but have been structured over 13 years (for PFAS), and reserves have been recorded as sufficient to cover the earplugs. The takeaway is that debt rose significantly over the last year but is offset by increased cash, assets, total assets, and reduced liabilities. Equity is up and expected to continue rising for the foreseeable future.
A Bullish Reversal is in Play for 3M
The technical outlook for 3M is bullish and may soon result in a new high. The market is up 50% from its low and on track to complete a Head & Shoulders Reversal Pattern. The critical resistance is near the long-term exponential moving average at $105. A complete reversal is confirmed if the market can rise above it, and a sustainable uptrend may form. Trading at 14x earnings is a deep value relative to the S&P 500 and pays substantially more in dividends.
