Consumer / industrial conglomerate
caught a downgrade on Tuesday. It might feel like a strange time to downgrade
Shares. The the economy is improvingwhich is usually good news for industrial stocks. In addition, there are 3M earnings ready to go higher in the coming years. But there are a few headwinds the company faces that could keep the stock in check.
‘s John Walsh is the analyst who downgrades 3M shares (ticker: MMM). Its rating is the equivalent of Hold from Buy. However, its price target rose from $ 210 to $ 212. But with stocks around $ 196.50, there isn’t enough upside to hold its buy rating.
Walsh’s downgrade weighs on stocks in late Tuesday trading. 3M shares are down about 1.6%. The
Dow Jones industry average,
for comparison, about 0.5% and 0.8% are off.
Walsh raised his price target as he raised his earnings estimate for 2022 from $ 10.50 to $ 10.60 per share. Earnings of about $ 9.84 per share are expected for 2021, up from $ 8.74 in 2020. Walsh even sees earnings potential in excess of $ 11 per share, but he doesn’t think that will Shares will continue to rise. Instead, he fears that the valuation multiple could shrink as earnings rise – the result would be a stagnant stock in this scenario.
The first problem Walsh sees for 3M stocks is cyclical. “We don’t expect significant multiple expansion because … where we are in the cycle.” Industrials usually do well when the economy moves back from recession to growth. Later, when growth slows down, companies like 3M have fewer opportunities for profit improvement. At this point, some investors forget industrials and look for other ideas.
The second problem is the uncertainty that arises from legal liability. 3M continues to bear liability and costs in connection with PFAS cleanup. PFAS is a chemical that was manufactured a long time ago by a number of companies including 3M. The chemical made it into the groundwater where it was made and the EPA wants old sites to be cleaned up. It is not fully known how much money will be needed for this and whether families will receive compensation for local pollution.
The second legal problem relates to ear plug sold to the military, manufactured by 3M. Some settlements have been reached regarding hearing loss among military veterans, but hundreds of thousands of lawsuits remain.
The level of earplug adhesion, like the PFAS problem, is not yet known. The company was not immediately available for comment on either issue Tuesday.
With the downgrade, only 15% of analysts will buy the stock. The average The buy rating for stocks in the S&P is around 55% The Average Analyst target price is around $ 200, slightly lower than Walsh’s target price of $ 212.
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