Analysts are bullish on the 3M stock price: should you?

on May 30, 2024
  • 3M shares have crashed by over 35% from their highest point in 2021.
  • The company is implementing a turnaround strategy under a new CEO.
  • I believe that the company could replicate General Electric’s success.

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3M (NYSE: MMM) stock price has lagged behind the market as the company has moved from one crisis to the other. It has crashed by about 35% from its highest point in 2021, making it one of the worst-performing companies in the Dow Jones Industrial Average. 

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A good turnaround story

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3M’s shares have plunged in the past few years as the company came under intense legal challenges. It recently agreed to pay over $12 billion or about 22% of its market cap to settle its forever chemicals cases. 

Worse, the company was forced to pay $8 billion to settle claims about its faulty earplugs sold to the US military. Paying about $20 billion is a lot of money for a company whose market cap stands at over $52 billion. 

Still, the company has made a lot of progress as it works to implement a turnaround. It has replaced its CEO with William Brown who has a long track record in the industrial sector. Before 3M, he worked for L3Harris, a leading player in the defense industry. He worked at United Technologies before that.

At the same time, the company has simplified its business by spinning off its healthcare segment into a separate firm known as Solventum. As part of this spin-off, 3M received a $7.7 billion dividend and still holds about 20% of the company. Solventum now has a market cap of over $10 billion, bringing its value to over $2 billion.

3M has also slashed its dividend to be about 40% of its annual free cash flow, which is expected to come in at about $3.7 billion this year. 

Fortunately, we have seen similar events in the past. A few years ago, General Electric was on its deathbed. It then hired Lawrence Culp from Danaher who started turning around the company. He slashed its dividend and separated its business into three: GE Aviation, GE Healthcare, and Vernova. Today, GE shares have surged to their all-time highs.

We also saw the same at IBM, which was going through a rough patch under Ginni Rometty a few years ago. It then appointed Arvind Krishna in 2020 and the stock has taken off, giving it a market cap of over $155 billion. 

3M’s new CEO has found a company that is quite undervalued with a PE ratio of 15, lower than the manufacturing average. It also has a stretched balance sheet with over $16 billion in debt and legal liabilities. This gives him room to turn around the company by reducing costs and even spinning off some of its businesses.

Analysts are a bit bullish on the stock. Data by Yahoo Finance shows that the average target by Wall Street analysts is $106, up from the current $97.5. Analysts tracked by TipRanks have a target of $110, meaning that it has some upside.

3M analysts

3M stock forecasts

3M stock price forecast

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3M stock

MMM chart by TradingView

Turning to the weekly chart, we see that the 3M share price has formed several bullish patterns in the past few months.

It has formed an inverse head and shoulders pattern, which is a popular bullish sign in the market. Also, the stock has moved to the third phase of the Elliot Wave pattern. It has soared above the 50-week and 100-week moving averages and is now hovering at the 38.2% Fibonacci Retracement level.

Therefore, I suspect that the shares will continue soaring as buyers target the 50% retracement point at $110.

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