Industrials

Can 3M's Conglomerate Structure Be Saved From the Wrecking Ball in 2020?

Credit Suisse maintained its Outperform rating and $178 price target on 3M, noting that the shares trade at a nine-year low against two key rivals and that the risk-reward skews positive.

CFRA maintained its Hold rating and $173 target price, noting concerns about slower revenue growth, tepid global growth, tariffs and trade wars, and steep acquisition costs.

Then the other firms that lowered targets or performance expectations need to be considered.

Merrill Lynch maintained a Neutral rating and $175 price objective, but the firm lowered its 2020 earnings per share estimate to $10.00 from $9.75 and talked about persistent weakness in Safety & Industrial and in Transportation & Electronics. The analysts noted that it remains unclear what is driving declining margins and how or when the company will be able to get its margins back up at a time when its companywide ERP rollout is scheduled to last for at least another year, with limited opportunities for near-term improvements.

Morgan Stanley maintained its Equal Weight rating but lowered the target price to $165 from $173.

RBC Capital Markets maintained its Sector Perform rating and lowered its target to $164 from $170.

One issue that may complicate any efforts to target 3M for a breakup or from any pressure by a future activist investor or group is that 3M has one of the longest streaks of consecutive annual dividend hikes of all major companies in the Dow Jones industrial and S&P 500 indexes. Those dividend hikes might be harder to expect during a break-up, and expecting all the units to continue on that path would be harder as some areas of the business would be unable to provide cover for the troubled areas.

The 24/7 Wall St. outlook for a 2020 turnaround after the second-quarter earnings also contained more concerns than opportunities at the time, and turnarounds become very problematic for companies if the economic growth story turns into an actual recession that the media had overly panicked the public into. 3M shares were closer to $175 at that time, and the S&P 500 is now within 1% of its all-time highs again.

Shares of 3M traded down 4.07% to $161.89 on Thursday after the earnings report, but Friday’s market gains in the first half of the day had shares up about 2.5% at $166.00. Its 52-week trading range is $150.58 to $219.75, after having peaked at just above $250 in early 2018.