3M (MMM 4.96%) stock remains a battleground among bulls and bears. Barclays analyst Julian Mitchell, one of the better analysts in the industrial sector, is on the fence. He recently retained a “hold” rating on the stock and incrementally upgraded the price target to $111 from $110.
The bull and bear cases
While the price target change is no big deal, it still represents a near 19% premium to Monday’s closing price and highlights the value case for the stock, which incoming CEO Bill Brown will try to unlock.
The challenge is that 3M is in turnaround mode, and it’s being valued that way. The stock is stuck around its lowest forward-looking valuation since the Great Recession, priced around 10 times the next 12 months’ earnings even after Tuesday morning’s gains.
It’s fair to say the company’s operational performance has disappointed in recent years. However, Wall Street analysts, including Mitchell, are concerned about how a potential company dividend change might affect sentiment toward the stock.
3M’s dividend is a concern
I think 3M would be better off if it did cut its dividend. But it looks like a case of damned if they do and damned if they don’t.
If 3M decides to maintain the dividend, that could come at the expense of using cash resources from the proceeds of its spinoff of Solventum (3M’s healthcare business) and the possibility of selling off the 19.9% of shares in Solventum it will retain. Meanwhile, the company has multibillion-dollar legal settlements to fund. Retaining the dividend might not satisfy investors who believe it’s not the most productive use of their money.
Alternatively, cutting the dividend would disappoint income-seeking investors and fund managers in a stock that’s raised its dividend for 64 consecutive years.
The latter looks like the best policy, and until that happens, or the question of the dividend is definitively resolved, many investors will shy away from buying the stock — and a stock price around $111 will seem out of reach.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends 3M and Barclays Plc. The Motley Fool has a disclosure policy.
