Shares of 3M Co. advanced in Monday’s session after a Barclays analyst abandoned his bearish call on the industrial company.
“One of the major factors why we have held an [underweight] rating on [3M] relates to the mounting legal liabilities in recent years,” Barclays’ Julian Mitchell wrote as he lifted his rating on the stock to equal weight. “However, we think that the coming months will show some progress on this front, at last.”
Mitchell noted that investors should get an update in March 2024 about the 98% target threshold for plaintiff opt-ins to 3M’s
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proposed settlement for its Combat Arms litigation. Additionally, the company has preliminary court approval for its Public Water Supplier agreement as relates to its PFAS litigation.
3M also has “quite attractive” cyclical exposures, according to Mitchell. He wrote that 3M has had weak top-line performance lately, which he attributes largely to its high exposure to areas like electronics and consumer businesses. “We think though that these markets are poised to improve in 2024, at least relative to the [multi-industry] average,” Mitchell wrote.
Further, Mitchell sees room for “outsized operating-margin expansion” after years of declines, as an improvement to top-line results and progress with cost-cutting start to pay off.
Given that optimism, why didn’t Mitchell turn bullish on the stock? For one, he flagged that he’s never boosted a rating by two notches in his 23 years on the sell side. Moreover, it’s “not a given that the company is ‘out of the woods’ in terms of litigation,” and 3M’s cyclical sales rebound may wind up being “quite subdued” since the company doesn’t typically sport sharp revenue upticks.
Shares of 3M rose 3.6% on Monday.
