There is a split among analysts regarding the outlook for investing in the industrial giant.
Barclays has been inconsistent in its 3M (MMM 0.38%) stock rating. A few weeks after raising the price target to $126 from $111, a Barclays analyst lowered the firm’s price target to $107 but maintained an overweight rating on the stock. The new target implies a nearly 15% upside over the next 12 months from its current price.
This price target is similar to the upgraded target given by a Bank of America analyst, whose target was lowered to $100 from $110. However, BofA maintained a neutral rating. RBC Capital is more pessimistic, with an underperform rating on the stock and an updated target of $78.
A busy time for 3M
These updates come in a busy news period. 3M’s healthcare business Solventum is now a separately listed stock, and the company recently received final approval for a $12.5 billion settlement over its production and use of PFAS chemicals. The settlement has a net present value of $10.5 billion with payments of $2.9 billion and $1.8 billion going out in 2024 and 2025. As previously discussed, these cash calls coming at a time of weaker cash flow generation might push management to lower its dividend payout.
Barclays’ analysts say 3M is recovering, but other companies in its peer group may experience stronger growth. Meanwhile, BofA sees 3M’s improved execution and low valuation as positives, although ongoing legal risks exist.
What it means to investors
Consider investing in 3M stock due to its appealing dividend. However, if you think 3M will reduce its dividend, it may not be a good investment for income seekers. A dividend cut could help 3M restructure without relying on funds from the Solventum spinoff or selling its stake in the healthcare company to support the dividend.
RBC Capital’s analyst predicts a dividend cut of up to 70% is on the way. The market won’t like that potential development. But when the dust settles, it might just put a floor on the stock price and give management the financial flexibility to restructure the company for growth.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends 3M and Barclays Plc. The Motley Fool has a disclosure policy.
