On Monday, CFRA adjusted its outlook on 3M Company (NYSE:MMM), reducing the price target to $100 from $110, while keeping a Hold rating on the stock. The adjustment follows the recent spin-off of 3M's healthcare business, now operating as Solventum (SOLV). Shareholders of 3M stock were allocated one share of SOLV for every four shares of 3M they owned as of the close on March 18, 2024.
The company, which retains a 20% stake in SOLV, plans to monetize this interest over the coming five years. Additionally, 3M shares are responding to the final court approval received today for the settlement of its PFAS lawsuit with public water suppliers. The settlement amounts to $10.3 billion, to be paid out over 13 years, with payments commencing in the third quarter of 2024.
CFRA believes that 3M is on a path to recovery, citing the appointment of a new CEO, a streamlined operating model, and a diminishing litigation burden. Nevertheless, the firm acknowledges that risks remain high in the short term, particularly due to potential further legal challenges concerning PFAS liability from non-public water supply parties.
The firm's revised price target is based on 10 times the projected 2025 earnings per share (EPS) of $10.00 and 10.7 times the forecasted 2024 EPS of $9.36. CFRA's stance reflects a cautious optimism about 3M's future, tempered by the recognition that the company still faces significant challenges ahead.
InvestingPro Insights
In light of CFRA's recent assessment of 3M Company (NYSE:MMM), examining the latest financial data from InvestingPro can provide additional context for investors. The adjusted market capitalization of 3M stands at $52.03 billion, reflecting the company's size and market presence post-spin-off. While the P/E ratio indicates a challenging recent past with a negative value of -7.45, the forward-looking P/E ratio for the last twelve months as of Q4 2023 improves to 11.54, suggesting a potentially better earnings outlook. Furthermore, the PEG ratio of 0.03 during the same period indicates that the stock may be undervalued relative to its earnings growth potential.
Investors may also find the dividend yield of 6.81% as of April 2024 particularly attractive, especially when considering the stability it can offer amidst market volatility. The gross profit margin of 43.77% for the last twelve months as of Q4 2023 emphasizes 3M's ability to maintain profitability despite the spin-off and ongoing litigation settlements.
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