3M's Investment Thesis To Worsen Before It Gets Better, Analyst Says - 3M (NYSE:MMM)

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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