3M To Focus On Operations, Innovation To Revive Growth, Says New CEO

The new CEO at 3M Co. MMM, Bill Brown, recently gave hints at what his priorities are going to be. A Bank of America analyst took notice.

The 3M Analyst: Edwin Obin upgraded 3M shares from Neutral to Buy and rose the price target from $105 to $120.

The 3M Takeaways: Brown, who started May 1, is aiming to refocus the company on growth and operations. With major litigation settlements behind 3M and uncertainty about remaining lawsuits reduced, investors are likely to look at improving operations, potential cyclical coverage and inexpensive valuation.

3M’s change in management comes at an “opportune time” as the company has focused on litigation over the past several years, Obin wrote in a note on Friday.

“Investors were also concerned about the optics of a dividend cut that is now behind us,” he said. “With major litigation settlements behind it and uncertainty about remaining lawsuits reduced, investors are likely to focus on improving operations, potential cyclical leverage and inexpensive valuation even when adjusted for future legal liabilities,” Brown said.

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Obin added that Brown has yet to outline his plan to investors, but 3M publicly said in a video to employees on May 12 that innovation-driven organic growth and operating efficiency are his two top priorities.

He also emphasized improving supply-chain performance, which is likely to drive improving working capital.

“The video demonstrates that Brown has spent his first days at 3M’s manufacturing and R&D facilities, the two areas of the company which historically have been at the heart of 3M’s culture,” Obin wrote. “Our sense is that over the past several years PFAS has been a major distraction impacting company’s operations and product development.”

PFAS stands for per- and polyflourinated substances, which have been at the center of settled lawsuits facing 3M’s Combat Arms and Public Water Suppliers divisions, according to the note.

“We estimate that the two settlements represent 40% of the total liabilities,” Obin wrote.

MMM Price Action: Shares of 3M have risen 2.64% to $100.86 Friday afternoon.

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