On Tuesday, BofA Securities adjusted its outlook on 3M (NYSE:MMM) shares, reducing the price target to $100 from $110, while maintaining a Neutral rating.
The adjustment follows the announcement on Saturday that 3M had received final approval for its settlement with Public Water Suppliers (PWS). The settlement, with a net present value (NPV) of $10.3 billion, is slated for payments over the next 13 years, beginning in the third quarter of 2024.
3M has indicated its engagement in insurance recovery activities to manage the financial impact of the settlement. Out of approximately 12,000 Settlement Class Members, around 897 PWS chose not to participate, accounting for 7.47% of the class. Conversely, 48 PWS initially opted out but later decided to rejoin the settlement. The finalization of the settlement is seen as a step towards resolving 3M's per- and polyfluoroalkyl substances (PFAS) liabilities.
The rationale behind maintaining the Neutral rating on 3M stock is a balance between the company's low valuation, signs of improving execution, and ongoing litigation risks. The price objective has been recalculated based on a 13 times estimated 2025 earnings per share (P/E), revised from an 11 times multiple. This change also incorporates the spin-off of Solventum, which was previously valued at $17 per share, and a reevaluation of 3M's industrial and consumer peers' P/E ratios.
Industrial peers have seen their P/E ratios increase from 22 times estimated 2024 earnings to 26 times, and consumer peers from 24 times to 25 times. These market reevaluations have influenced the revised price target for 3M. The company is expected to commence settlement-related payments in the latter half of this year.
InvestingPro Insights
As 3M (NYSE:MMM) navigates the aftermath of its settlement agreement and looks toward future payments, current InvestingPro data provides a snapshot of the company's financial health and market performance. With a market capitalization of $52.03 billion and a trailing twelve months P/E ratio adjusted to 10.23, 3M presents a mixed picture. While the company has experienced a revenue decline of 4.52% in the last twelve months as of Q4 2023, its gross profit margin remains robust at 43.77%. Investors may also take note of the company's dividend yield of 6.42%, which stands out in the current market and could suggest a potential for income in their portfolios.
InvestingPro Tips indicate that 3M's PEG ratio of 0.03, as of the last twelve months of Q4 2023, points to a potentially undervalued stock in terms of growth expectations. Additionally, the InvestingPro Fair Value of $119.33 USD exceeds analyst targets, suggesting that the stock may have room for upward price movement. For those interested in further analysis, InvestingPro offers additional tips that can provide deeper insights into 3M's valuation and performance metrics. Readers can use the promo code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to these valuable resources.
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