3M Risks 'Well-Understood,' Say Credit Suisse

• 3M Co MMM shares are down 16 percent year-to-date, hovering close to the lower end of their 52-week range of $130.60 - $170.50.
• Credit Suisse’s Julian Mitchell upgraded the rating on the company from Neutral to Outperform, while reducing the price target from $160 to $155.
• Following the recent pullback, the shares reflect the Electronics and margin risks and are attractive, Mitchell said.

Analyst Julian Mitchell believes that 3M represents an attract risk/reward, following the recent decline in its share price, especially when compared to other defensive plays in the Electrical Equipment and Multi-Industry (EE/MI) sector. The company is one of the few that could generate double-digit EPS growth next year, even in the absence of a significant improvement in the macro environment.

Mitchell said that the company’s share price now reflects several negatives, including reduction in the 2015 EPS guidance, minimal margin expansion in 2016 and a strong US dollar.

The EPS estimates for 2015, 2016 and 2017 have been reduced from $7.78 to $7.73 and from $8.55 to $8.50, respectively, to reflect a weaker growth outlook. The EPS estimate for 2017 has been raised from $9.28 to $9.44.

“For 2015, consensus had recently 'caught down' with our estimates, but we now cut again (on Electronics, Industrial markets) and our forecast moves to the bottom-end of the current guidance range (we expect a guide cut in October, and think that all investors expect this to occur too),” the analyst reported.

Strong price and raw material tailwinds have benefited the company so far this year. Investors are concerned that these benefits may decline in 2016. Mitchell believes that this risk is well understood and “well-embedded in investor and even sell-side expectations.” Moreover, there are still some key tailwinds next year that may make it another above-average year in margin expansion.