3M's Investment Thesis To Worsen Before It Gets Better, Analyst Says

3M's Investment Thesis To Worsen Before It Gets Better, Analyst Says
  • RBC Capital Markets analyst Deane Dray reiterated an Underperform rating on the shares of 3M Co MMM and lowered the price target from $113 to $106.
  • 3M reported headline adjusted EPS of $2.28, 8 cents below consensus at $2.36. 2023 EPS guidance range of $8.50- $9.00 was 14% below the consensus of $10.22 at the midpoint, said the analyst.
  • Organic sales are expected to be down -3.0% to flat in 2023, and compared to consensus of up 2.3%, the analyst noted.
  • The analyst said that the weaker 1Q23 guidance, $1.25-$1.65 vs. $2.50 consensus, is already setting the company up for an unappealing back-half weighted year in a challenging macro.
  • Management noted that the supply chain continues to improve but inflation pressures remain, albeit at lower levels, added the analyst.
  • The analyst is reducing 2023 EPS estimate by $1.60 to $8.75, introducing 2024 estimate at $10.20, and decreasing the price target by $7 to $106.
  • While there are a laundry list of headwinds from disposable respirators, Russia, FX, raw material headwinds, and divestitures, the analyst was surprised how far below consensus guidance was set.
  • 3M noted that demand across industrial markets was mixed, but that overall industrial demand was moderating.
  • As such, the company has taken actions to adjust manufacturing output and cost controls, said the analyst.
  • All segments expected to see flat to down organic sales in 2023 except Health Care, added the analyst.
  • With exposure to the most challenged verticals, namely consumer, consumer electronics, and China, 3M is seeing destocking by retailers and tepid consumer spending, cited the analyst.
  • The analyst said an underwhelming 1Q23 guide is already skewing 3M to an unappealing 2H-weighted 2023.
  • The analyst expects MMM’s investment thesis to worsen before it gets better.
  • Price Action: MMM shares are trading lower by 1.83% at $112.89 on the last check Wednesday.

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