3M (MMM 0.46%) has been a mess for years now, with the stock losing half of its value over the past five years and trailing the S&P 500 by about 130 percentage points. Investors came into 2024 hoping that after years of restructuring, 3M was ready to move on from its troubled past.
Fourth-quarter results doused some of that optimism and caused 3M to shed most of the gains it had made in the final months of 2023. Shares of the diversified manufacturer fell 13.7% in January, according to data provided by S&P Global Market Intelligence.
3M investors might need to wait until next year, again
3M is one of the most storied names in American innovation, the company famous for inventions including Post-its and Scotch Tape as well as a large number of industrial products used in healthcare, manufacturing, and other areas.
But the innovation engine has been sputtering in recent years, and the company has been distracted by multiple lawsuits related to allegedly defective earplugs and masks and concerns about chemicals leaking into groundwater. 3M shares have been battered by a series of missed earnings and sales targets and projections about future growth that never materialized.
2023 was to be the year that 3M put a lot of those troubles behind it, reaching settlements to resolve much of the litigation against it and making plans to spin off its healthcare unit to investors. But the company's midmonth earnings report provided a reminder of the work that still needs to be done.
3M actually beat on fourth-quarter earnings, but its 2024 guidance fell short of expectations. The company hopes to fund much of the expected settlement via proceeds from the healthcare split, but over time investors are worried that the deal could cause margin shrinkage because 3M is shedding some well-regarded business units.
Is 3M a buy heading into 2024?
The outlook was underwhelming, but 3M is understandably cautious given all the variables in play for the company in 2024. The bull case from here is that 3M does what is needed in the quarters to come and is finally free to chart a course for recovery with its current problems behind it. Management expects its streamlining to create $700 million to $900 million in total annual benefits in years to come.
Still, questions about timing, and execution, remain. There is also a risk that 3M might need more cash to fund settlements than it will get from the spinoff, which could affect management's capital allocation plans or cause a dividend suspension.
There is potential here, but 3M has done very little in recent years to earn investor confidence. Investors would be wise to watch from the sidelines for now.
