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3M (NYSE:MMM) on Thursday was upgraded to Outperform from a previous investment rating of Peer Perform by analysts at Wolfe Research.
They said they are recommending the industrial conglomerate for the very first time because they’re encouraged by the appointment of Bill Brown, the former head of defense contractor L3Harris (LHX), as chief executive.
“Bill is best known for his prior tenure as CEO at L3Harris (LHX), where he oversaw a sustained period of stock outperformance, and developed a track record for operational nous,” Nigel Coe, analyst at Wolfe Research, said in a June 13 report. “We are optimistic that there are opportunities to significantly improve margins, and this can be a motor of multiple expansion.”
Wolfe raised its estimate of 3M’s (MMM) earnings to $7.30 a share from $7.12 a share for full-year 2024.
The analysts set a price target for 3M (MMM) of $125 a share, based on an estimated enterprise value that’s 13.5 times earnings before interest, taxes, depreciation and amortization for 2025. The valuation includes a net present value estimate for legal liabilities of $21 billion.
3M (MMM), whose consumer brands include Scotch tape and Post-it Notes, in April received final approval from a federal court for a legal settlement of as much as $10.3 billion with U.S. public-water suppliers tied to PFAS, or what are known as forever chemicals because they don’t break down easily. 3M (MMM) also agreed to pay as much as $6 billion to settle litigation related to ear plugs for the U.S. military.
“We continue to believe 3M (MMM) merits a valuation discount, in light of anemic growth trend, limited capital optionality and residual liability concerns,” according to Wolfe, “yet we see substantial upside to our new base case year-end 2024 price target of $125.”
