Company Reports

Narrow-moat 3M raised the lower end of its full-year adjusted earnings per share expectations, sending shares up over 6% premarket on July 26. However, net sales declined 0.5% year over year, mostly stemming from organic sales declines in the EMEA region led by weakness in 3M’s consumer segment. We maintain our fair value estimate at $89 per share.

After taking a fresh look at the old-world conglomerate, we’ve decreased 3M’s fair value estimate to $89 per share from $118 stemming from a slightly more bearish view on its cost of capital and growth prospects. We’ve maintained our narrow economic moat rating and Standard Capital Allocation Rating. Near term, 3M’s dividend and reinvestment capabilities should continue to be suppressed as the firm pays legal settlements from the environmental damage it has caused by manufacturing per- and polyfluoroalkyl substances, or PFAS.

Estimating 3M's legal liabilities from producing per- and polyfluoroalkyl substances, or PFAS, is a highly uncertain exercise. While some believe these liabilities total greater than the firm's market capitalization, we think 3M's settlements and the spinoff of Solventum reduce 3M's risks substantially. We remain concerned over 3M's incremental PFAS-related liabilities, but we think they're manageable in their current state.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these liabilities total greater than the firm's market capitalization, we think 3M's settlements and the spinoff of Solventum greatly reduce 3M's risks and is the right move for shareholders. While we remain concerned over 3M's incremental PFAS-related liabilities, we think they're manageable.

Narrow-moat-rated 3M released a first-quarter earnings report that exceeded our earnings expectations. Further, full-year 2024 guidance, excluding Solventum, came in better than we hoped. Consequently, we raised our fair value estimate by roughly 6% to $110. While we completely pegged sales during the quarter, adjusted operating margins materially surpassed what we hoped to see, with a difference of roughly 260 basis points to the upside. After reviewing management’s latest guidance, on a like-for-like basis, we’re expecting approximately $0.25 more of earnings per share in the back half of the year (or nearly $140 million of earnings through the remainder of the year). This is a positive result for shareholders because it suggests management’s restructuring efforts are finally taking root, coupled with material carryover benefits. Though the market price rose 5% during the trading day, we think the market still doesn’t fully appreciate the upside in the stock. Shareholders may find it prudent to continue holding the stock for potential capital appreciation.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these liabilities total greater than the firm's market capitalization, we think 3M's settlements and the spinoff of Solventum greatly reduce 3M's risks and is the right move for shareholders. While we remain concerned over 3M's incremental PFAS-related liabilities, we think they're manageable.

Upon further analysis, we raise our 3M fair value estimate to $104 per share from $99 to account for Solventum’s “midnight dividend” of $7.7 billion to 3M, but mostly offset by other lost cash implications from Solventum’s prior contribution. At current market prices, as of April 4, 2024, of just over $90, this implies 3M trades at a roughly 12% discount to our revised fair value estimate.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these total liabilities are greater than the firm's market capitalization, we think its 2023 settlements and the spinoff of Solventum greatly reduce 3M's risks and is the right move for shareholders. However, we remain concerned over 3M's ability to absorb additional PFAS-related liabilities.

After reviewing 3M and 3M health care, or Solventum’s filings, we reduced our fair value estimate to $99 from $127, or roughly 22%. That said, our valuation is driven by the lost earnings and cash flow associated with the spinoff. Our long-term view of 3M’s remaining industrial and consumer-facing businesses remains intact. In fact, we think these businesses will increase their top line organically by roughly 2%-3% over our long-term forecast, and enjoy volume leverage somewhere between 30% and 40%, adjusted for the impacts from both the Solventum spin and 3M’s decision to manufacture PFAS-related products.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these total liabilities are greater than the firm's market capitalization, we think its 2023 settlements greatly reduce 3M's risks and is the right move for shareholders. However, we remain concerned over 3M's ability to absorb additional PFAS-related liabilities, particularly related to personal injury exposure.

Narrow-moat 3M announced it has named a new CEO in Bill Brown. We like the news and view the change as an indictment of the Roman era. That said, we maintain our $127 fair value estimate.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these total liabilities are greater than the firm's market capitalization, we think its 2023 settlements greatly reduce 3M's risks and is the right move for shareholders. However, we remain concerned over 3M's ability to absorb additional PFAS-related liabilities.

Narrow-moat rated 3M posted in-line fourth-quarter results. Therefore, we maintain our $124 fair value. While fourth-quarter sales were slightly below expectations, adjusted operating margins came in a bit higher. That said, legal-related charges represent real costs to shareholders, and those boosted adjusted results. Nevertheless, we think the selloff following the release was an overreaction to a weaker-than-expected 2024 organic sales guide.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these total liabilities are greater than the firm's market capitalization, we think its 2023 settlements greatly reduce 3M's risks and is the right move for shareholders. However, we remain concerned over 3M's ability to absorb additional PFAS-related liabilities.

Nothing in narrow-moat-rated 3M’s third-quarter results materially alters our long-term view. We raise our fair value estimate to $124 from $123 following our Oct. 24 valuation change, when we downgraded 3M’s moat to narrow from wide. 3M’s third-quarter earnings beat our expectations; however, quarterly adjusted revenue was right in line and business segment operating profits dipped slightly below what we had penciled in.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these total liabilities are greater than the firm's market capitalization, we think its 2023 settlements greatly reduce 3M's risks and is the right move for shareholders. However, we remain concerned over 3M's ability to absorb additional PFAS-related liabilities.

We reduced our 3M fair value estimate to $123 from $131, due to the moat downgrade to narrow from wide. We think that 3M’s basic moat framework remains valid. Specifically, 3M's centralized research and development capabilities should protect excess returns. However, that argument is far weaker than it used to be. Consequently, we’re less confident in 3M's moat durability.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these total liabilities are greater than the firm's market capitalization, we think its 2023 settlements greatly reduce 3M's risks and is the right move for shareholders. However, we remain concerned over 3M's ability to absorb additional PFAS-related liabilities.

Estimating 3M's legal liabilities is a highly uncertain exercise. While some believe these total liabilities are greater than the firm's market capitalization, we think its 2023 settlements greatly reduce 3M's risks and is the right move for shareholders. However, we remain concerned over 3M's ability to absorb additional PFAS-related liabilities.

Various reputable media outlets report that 3M is nearing a roughly $5.5 billion settlement related to its Combat Arms earplugs. Consequently, we don't expect to materially change our $131 fair value estimate, if at all. In fact, the nearly $5.5 billion figure is very close to our $4.9 billion estimate, and well below the market estimates we've seen floating around of $10 billion-$15 billion for Combat Arms. Even so, it's still materially more than the $1 billion settlement trust 3M had initially proposed to resolve these issues.