Investing.com -- Wells Fargo raised its rating for 3M to Overweight and raised its price target to $170 from $140 in a note Wednesday, citing improving margins and the company's proactive approach to cash deployment.
Analysts at the bank highlighted significant efficiency opportunities and management's confidence in operational execution as key drivers for the upgrade.
"After the largest restructuring program in 3M’s history, there’s still significant cost opportunity ahead to drive better operational execution," Wells Fargo (NYSE:WFC) stated.
The bank pointed to various areas for improvement, including on-time/in-full (OTIF) metrics, supply chain efficiencies, inventory days, and yield loss.
They believe these efforts could yield substantial benefits whether industrial demand accelerates or underwhelms, according to the note.
Wells Fargo also emphasized the company’s plans for share buybacks as a strong signal of confidence.
"Cash and marketable securities ended 2024 at $7.7 billion. Management expects to end 2025 at over $6 billion," Wells Fargo added.
The analysts believe 3M's decision to prioritize share repurchases underscores its faith in operational efficiency and attractive valuation levels.
Despite ongoing liability risks related to PFAS and settlement costs for personal injury, water treatment, and environmental damages, Wells Fargo sees 3M as well-positioned.
"The current cash balance and anticipated free cash flow generation can fully cover scheduled settlement payments, dividend growth, and ongoing buybacks, plus larger deployment as settlement payments ease in 2028," the analysts wrote.
Looking ahead, Wells Fargo anticipates more detailed targets at 3M’s February 27 investor day. The firm expects organic growth of 3-5%, along with operational leverage and productivity improvements, driving a low double-digit to low-teens EPS compound annual growth rate over the medium term.
With the new price target reflecting 17.5x 2025 EBITDA, Wells Fargo highlighted 3M's improving financial outlook and operational focus as reasons for optimism.