A JPMorgan Chase analyst recently raised their price target on industrial conglomerate 3M (MMM -0.26%) by $10 to $118, a figure representing a roughly 27% premium to the current price. However, the analyst fell short of giving 3M a “buy” rating and stuck with a “neutral” rating.
3M receives a positive view from an analyst
The analyst’s arguments revolve around 3M’s margin expansion initiatives through cost-cutting actions and strong cash generation in 2023. As a reminder, 3M plans to cut $700 million to $900 million in costs by the end of 2025 (with the actions taken to achieve them finished by the end of 2024), while taking $700 million to $900 million in charges along the way. The company’s adjusted free cash flow (FCF) came in at an impressive $6.3 billion in 2023, easily surpassing adjusted net income of $5.1 billion.
For 2024, management expects adjusted earnings per share in the range of $9.35 to $9.75 and adjusted FCF within 5 percentage points higher or lower. At the midpoint of guidance, 3M should generate about $9.55 in FCF per share. That means the stock is trading for a little under 10 times this year’s estimates.
Is 3M stock a buy?
The FCF valuation makes 3M look like an excellent value. Moreover, 3M is starting to expand its margin more effectively, and this may prove to be a perfect time to buy 3M stock.
Still, there’s still a lot of uncertainty around its legal liabilities, and management’s history of falling short on its sales guidance is concerning. Note that management’s guidance cited above includes the healthcare segment, which will be spun off by the end of the second quarter.
After the spin, management promised to update investors on its 2024 guidance for the remaining company. Cautious investors may want to hear what that is before buying in.
