3M (NYSE: MMM) was downgraded by several analysts and investment banks recently with lower price targets. It currently has a consensus rating of Hold and a price target of $155.69, giving it a 20.64% upside. The stock compares unfavorably to the S&P 500 as this index has a rating of Buy with a higher upside at 31.65%. 3M is currently dealing with several product liability lawsuits that have spooked some investors.
The lawsuit most talked about appeared in the WSJ, stating that 3M could potentially face billions in liabilities from selling defective earplugs that led to hearing loss and tinnitus in military service members. Analysts at banks, including J.P Morgan (NYSE: JPM), have dismissed the effect of the lawsuits, calling them overblown, and instead pointed toward 3M's perceived lack of progress in strengthening its liability management and business execution as the reasons for the downgrade. Besides, companies like 3M generally have comprehensive product liability insurance that protects them in litigious situations. Even if the lawsuits were all successful against 3M, its insurer may be the one that would foot the bill, not 3M.
Perspectives
While some investors are running scared in the face of lawsuits, others are loading up their bags with 3M as they see an opportunity amidst the chaos. A case could be made that the company's stock is undervalued. Shares of 3M currently trade near or at the bottom across various timeframes, including its 52-week range. The stock has lost 26.70% YTD. If this loss holds until the end of the year, it will be the most significant sell-off for the stock since losing 31.76% in 2008 during the tail end of the global financial crisis. The stock's steep decline briefly led to it becoming oversold on several momentum oscillators in mid-June and has since recovered by trading sideways.
Another aspect to consider is the stock's P/E ratio compared with its EPS. In Q2'21, the stock reached an ATH for its EPS at $10.22, while its P/E ratio stood at 18.75. Today the stock has a P/E ratio of 13.55 while its EPS of $9.61 remains near the top of its upper range, thus undervalued on a relative basis. 3M has also added to the strength and consistency of its dividend. The company's FWD yield stands at 4.58%, which is 150.89% higher than its sector median at just 1.82%. 3M has 63 years of consecutive dividend growth and payments, compared with the sector median of 2 and 13 years, respectively.
Not everything is rosy for this stock. The company's FWD revenue growth stands at 4.44%, compared to 10.73% in its sector. Its YoY EBITDA contracted -by 1.58%, while the sector grew by 20.26%. As a consensus estimate, analysts covering the stock have stated that its EPS is expected to contract by -4.79%.
3M Vs. General Electric
General Electric (NYSE: GE) is one of 3 M's main competitors in the industrial conglomerate sector. Both are trading near their 52-week lows at 3.62% and 5.15%, respectively. The losses for GE have been steeper than 3M across various timespans, losing -33.15% YTD compared with -23.74%. A notable exception is across the last ten years, where 3M delivered a 99.69% return while GE recorded a -47.29% loss.
Another area that 3M shines compared with GE is its dividend. 3M has an FWD dividend rate of $5.94 compared with $0.32 for GE. 3M's 5-year dividend growth rate is also superior at 5.38%, while GE's dividend contracted a whopping -46.51%.
3M is twice as expensive as GE when buying one unit of the company's sales. 3 M's P/S ratio stands at 2.13 while GE's P/S ratio is 0.93.
