A JPMorgan analyst recently lowered his price target on 3M (MMM -1.22%) stock to $110 from $118 and retained his neutral rating on it. That new price target still anticipates a near-20% upside over 12 months from the current price of about $92, highlighting the stock's value case.
Why the price target changed
It looks like a downgrade, but in reality, the change reflects the spin off of 3M's healthcare business, now trading as Solventum (SOLV 0.84%). 3M shareholders received one share of Solventim for every four they held in 3M. As such, Solventum's stock price of $61.75 equates to $15.44 in "old 3M." Adding the $15.44 to 3M's $91 price gives an "old 3M" price of about $106.40.
The analyst's previous price target for "old 3M" was $118, implying an 11% upside. The updated price target after the spinoff is $110, implying a 20% upside. So even though the price target fell, it could still be considered an upgraded price target.
What it means to 3M investors
The JPMorgan price target looks relatively optimistic. Citi's investment firm has a $98 target on it, and Bank of America has a $100 target. All three have neutral ratings.
One reason Wall Street is cautious about the stock is concern that 3M will cut its dividend amid ongoing cash calls from legal settlements. RBC Capital thinks a dividend cut of 50% to 70% is coming.
3M agreed to pay $6 billion between 2023 and 2029 to resolve litigation over faulty combat arms earplugs. It came to a settlement agreement to pay $12.5 billion from now through 2036 to resolve lawsuits over the contamination of U.S. drinking water supplies with PFAS, aka "forever chemicals," with $9.3 billion of that payout coming in the next five years. Meanwhile, 3M has lost the relatively stable cash flows from its healthcare business and is already in restructuring mode as management tries to turn around its disappointing operational performance.
As such, some caution over the stock is perfectly understandable.
