On Tuesday, RBC Capital Markets revised its outlook on 3M Company (NYSE:MMM), reducing its price target to $78 from $84, while maintaining an Underperform rating on the stock. The adjustment follows the recent spinoff of 3M's health care business, Solventum, which occurred on April 1, 2024.
The first quarter of 2024 will still include the Health Care segment in 3M's financial reporting. However, starting from the second quarter of 2024, the Health Care sales and profits are expected to be excluded from 3M's results due to the spinoff. The analyst from RBC Capital anticipates that 3M will incur $150-$175 million in annual stranded costs, which will be recorded across various segments of the company.
The firm also projects that the transitional service agreement (TSA) income and costs associated with the spinoff will have a mostly neutral impact on 3M's financials. In the sum-of-the-parts (SOP) valuation, which includes an assumption for legal liabilities, the new price target suggests a potential downside of approximately 15%.
Investors and market watchers are now observing how the spinoff and the associated financial adjustments will affect 3M's performance in the upcoming quarters, as the company adapts to its new structure and market conditions.
InvestingPro Insights
With 3M Company's recent spinoff of its health care business, investors are keenly watching the company's financial health. The latest data from InvestingPro shows a mixed financial picture. The adjusted market cap stands at a robust $52.03 billion, suggesting a sizeable presence in the market. Despite a negative P/E ratio of -7.45, the adjusted P/E ratio for the last twelve months as of Q4 2023 is more promising at 10.23, indicating potential undervaluation by historical earnings standards. The PEG ratio of 0.03 for the same period could imply that the stock's price is in line with expected earnings growth, making it a potentially attractive option for value investors.
InvestingPro Tips highlight that 3M's dividend yield is currently at a high 6.42%, which could be appealing to income-focused investors, especially considering the 1.34% dividend growth in the last twelve months. Additionally, with the stock price currently at 83.1% of its 52-week high and a fair value estimation by analysts at $105 and InvestingPro at $119.33, there may be room for price appreciation. For those looking to delve deeper into 3M's financials and future prospects, InvestingPro offers a range of additional tips—users can access these and more with a special offer using coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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