3M's Earnings Impress, Yet Analysts See Long Road Ahead With Cyclical Recovery And PFAS Risks

Analysts boosted the price target for 3M Company MMM following yesterday’s strong third-quarter results.

The company’s adjusted net sales totaled $6.068 billion, marginally above the consensus of $6.057 billion, and adjusted EPS of $1.98 exceeded the consensus of $1.90.

3M revised FY24 adjusted EPS guidance to $7.20 – $7.30 from $7.00 – $7.30 versus the consensus of $7.26.

Related: Post-It Maker 3M Q3 Earnings: Sales Growth Slows, Margins Expand, Raises Annual Profit Outlook

BofA Securities analyst Andrew Obin raised the price target to $160 from $143 while maintaining a Buy rating.

The analyst writes that 3M appears cautious about 2025, which he interprets as a reflection of limited macroeconomic visibility rather than an indication of the effectiveness of its internal growth initiatives.

The analyst notes that the company is hesitant to identify an inflection point in the cycle, aligning with the messages from other multi-industrial companies in his coverage that are exposed to short cycles.

Increased volumes during a cyclical recovery should significantly enhance 3M’s margins, adds the analyst.

Obin writes that 3M’s growth profile has become more cyclical relative to the PMI during economic slowdowns, likely due to fewer new product launches in recent years.

Reaccelerating organic growth throughout the cycle is a key focus for the CEO, but cyclical leverage is expected to be the primary driver of earnings growth in the coming quarters, adds the analyst.

The analyst maintains 2024 EPS at $7.30, which is at the high end of 3M’s guidance.

Apart from this, RBC Capital Markets analyst Deane Dray increased the price target to $100 from $99 and reiterated the Underperform rating.

The analyst writes that despite CEO Bill Brown's effective strategies for tackling 3M’s operational weaknesses, the company is still in the early stages of what is expected to be a multi-quarter to multi-year (and sometimes disruptive) turnaround.

Looking forward, five categories of unaddressed PFAS liabilities remain, which could present a multi-billion-dollar risk to the company, adds the analyst.

The analyst raised adjusted EPS estimates to $7.25 (from $7.20) for FY24 and $7.90 (from $7.80) for FY25.

Investors can gain exposure to the stock via ProShares Smart Materials ETF TINT and FT Vest DJIA Dogs 10 Target Income ETF DOGG.

Price Action: MMM shares are down 3.91% at $126.58 at the last check Wednesday.

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