On Friday, BofA Securities revised its rating on 3M (NYSE:MMM), lifting the company from Neutral to Buy and increasing the price target to $120 from the previous $105. The upgrade follows the appointment of a new CEO, who is expected to steer the company towards growth and operational improvements.
The analyst noted that 3M's shift in focus comes at a critical time, as the company has recently been preoccupied with significant litigation issues and the restructuring of its business, including the cessation of PFAS manufacturing and the spinoff of its Healthcare division. These changes have now set the stage for 3M to concentrate on enhancing its operations and potentially leveraging its position in the cyclical market.
The new price objective of $120 is founded on a 10 times multiple of the company's projected 2025 enterprise value to EBITDA, which is notably lower than the 16 times average multiple of its peers. Additionally, the analyst has adjusted 3M's dividend rating to 7, indicating expectations of a stable or increased dividend, an improvement from the previous rating of 8, which suggested the dividend could remain the same or be lowered.
In other recent news, 3M has announced several significant developments. The company's healthcare business spinoff, Solventum, has been a focal point of discussion with analysts projecting health care sales and profit to be excluded from the second quarter of 2024 onwards. The separation could lead to $150-$175 million in annual stranded costs. Furthermore, 3M announced a quarterly dividend of $0.70 per share for the second quarter of 2024, maintaining a tradition of delivering dividends to its shareholders.
At the Annual Meeting of Shareholders, twelve directors were elected to one-year terms, yet the advisory proposal for executive compensation did not receive the necessary votes for approval. HSBC analyst Wesley Brooks upgraded 3M's shares from Hold to Buy, setting a price target of $115.00, citing the successful execution of the company's restructuring program as a potential catalyst for stock performance.
InvestingPro Insights
Following BofA Securities' upgrade of 3M, a deeper dive into the company's financial metrics reveals a nuanced picture. With an adjusted market capitalization of $55.06 billion, 3M is maintaining a substantial presence in the market. The company's P/E ratio, currently at -7.8, reflects investor skepticism about earnings, but the forward-looking adjusted P/E ratio for the last twelve months as of Q1 2024 is more optimistic at 10.43. This suggests that analysts are expecting earnings to improve in the near term.
InvestingPro data also shows a PEG ratio of 0.03 for the same period, indicating that the company may be undervalued based on its expected growth rates. Moreover, the company's revenue of $32.65 billion, despite showing a slight decline of 2.33% in the last twelve months as of Q1 2024, is backed by a robust gross profit margin of 44.55%. This demonstrates 3M's effectiveness in maintaining profitability amidst revenue fluctuations.
For investors considering the dividend prospects referenced by BofA Securities, the dividend yield stands at 2.85%, with the last dividend ex-date being May 23, 2024. The InvestingPro platform offers additional insights, including PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription. Moreover, there are several more InvestingPro Tips available that could further guide investment decisions regarding 3M.
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