3M stock price in 5 years: Can MMM overcome litigation issues, health-care business spinoff?
3M’s (MMM) share price has suffered this year as the US-based multinational conglomerate faces the largest ever single litigation across multiple US states.
The stock, which trades on the New York Stock Exchange (NYSE), has dropped 35.94% year-to-date (YTD), as the lawsuits have compounded the bearish pressure of the downturn in financial market sentiment.
Is the impact of the litigation now accounted for in the MMM stock price or is there scope for further downside? Is now a good time to buy the stock for a long-term investment or would it be better to go short? In this article we look at the stock’s recent performance and the latest 3M stock predictions.
3M evolves from local mining firm to multinational
3M was founded as the Minnesota Mining and Manufacturing Company in 1902 by five businessmen to mine corundum, a mineral used to produce sandpaper and grinding wheels. But the mining resource they owned turned out to be another low-grade mineral called anorthosite.
The company instead began to develop alternative products, beginning with sandpaper.
In 1925, 3M invented masking tape. In the 1950s, it began producing perfluorooctanoic acid (PFOA), which chemical firm DuPont purchased in 1951 to manufacture Teflon. 3M also discovered the formula for the Scotchgard water repellent for fabrics. It produced the first asthma inhaler. RCA first used 3M magnetic tape to record television programmes in 1954.
Today, 3M manufactures over 60,000 products organised across four business sectors: consumer; safety and industrial; transportation and electronics; and health care. It has developed some of the world’s best-known brands, including Scotch, Post-It and Thinsulate, and holds more than 500 US patents. The company has corporate operations in 70 countries.
What is your sentiment on MMM?
MMM share price under lawsuit pressure
The MMM stock price reached an all-time closing high of $220.83 on 26 January 2018. As of 18 October, the price was down by 40% from its 52-week high of $186.30 a share, closing at $113.69 on 14 October, having reached a nine-year low of $113.43 on 22 September.
The share price started 2022 at $177.74, then trended down to $144.38 on 23 February as the broader markets turned bearish.
The stock traded around $140 to $150 until late June, when it dropped to the $130 level.
MMM rebounded to $152.24 on 12 August. However, it fell sharply to $124.35 by the end of the month after a federal judge on 26 August blocked the company from using the bankruptcy filing of its Aearo Technologies subsidiary to avoid 230,000 lawsuits brought against it - veterans who suffered hearing impairment from using defective military earplugs are seeking damages.
On 26 July, Aearo initiated Chapter 11 bankruptcy proceedings to help establish a $1.2bn trust fund to finance settlements.
The litigation began in 2018 when 3M agreed to a $9.1m settlement in July in a False Claims Act lawsuit that raised allegations the company knowingly supplied the US military with defective earplugs.
According to Aylstock Witkin Kreis & Overholtz, one of the law firms representing the plaintiffs:
“Since the inception of this litigation in 2019, there have been 16 trials. In ten of those trials, juries found that 3M’s Combat Arms Earplugs were defective and the cause of the service members’ hearing loss and/or tinnitus. Those juries have awarded the claimants in excess of $300 million dollars.”
Aside from the legal cases, 3M is also in the process of spinning off its health care business into a standalone entity that will focus on becoming a “global diversified healthcare technology company focused on wound care, oral care, healthcare IT, and biopharma filtration.”
The new 3M will remain a leading global material science innovator serving diverse end markets, with science and technology, manufacturing, global capabilities, and iconic brands.” 3M will retain a 19.9% stake in the health care business, which it intends to monetise over time “ to create long-term value”. The company expects to complete the transaction by the end of 2023.
On 1 September, 3M completed the separation of its food safety business, which subsequently became a wholly owned subsidiary of NeoGen.
In its second quarter financial results, 3M reported revenues of $8.7bn, down 3% year on year, which it attributed to a “negative 4 percentage point impact from foreign currency translation due to strength of U.S. dollar.” Its net income dropped 94.9% to $78m, down from $1.524bn in the second quarter of 2021.
“In a challenging macroeconomic environment, 3M executed well and delivered solid earnings, while continuing to drive growth through investments in large, fast-growing areas,” the company’s chairman and CEO Mike Roman said.
“Looking ahead, we updated our adjusted full-year expectations largely due to the strength of the U.S. dollar and uncertain macroeconomic environment.”
The company currently expects full year total sales growth of between -2.5% and -0.5%, compared with its previous guidance of 1% to 4% growth. It expects adjusted earnings per share (EPS) of $10.30 to $10.80, down from $10.75 to $11.25.
What is the outlook for the 3M share price over the long term? Let’s look at some analysts’ forecasts.
3M stock forecast: How will the stock perform in the next five years?
At the time of writing on 18 October, according to MarketBeat, the average price target from 14 Wall Street analysts that have issued an MMM stock forecast is $142.27 a share, ranging between a low estimate of $108 and a high of $205.
MarketScreener reported that on 3 October, analysts at Barclays cut their 3M stock forecast to $130 from $137, with an ‘underweight’ rating.
Citigroup’s analysts cut their MMM stock forecast to $117 from $145 on 10 October. The following day, Goldman Sach lowered their price target to $129 from $149.
On 12 October, it was Morgan Stanley’s turn to cut its target price, placing it at the low end of the range at $108 from $131. The next day, Deutsche Bank’s analysts reduced their 3M stock forecast to $126 from $127, with a ‘hold’ rating.
Analysts at Bank of America Research wrote in their 3M share price forecast in September that they:
“See legislative action around PFAS contamination as a key risk to 3M… Negative headlines and incremental lawsuits are likely to drive derating to 3M stock… While it seems investors are broadly less optimistic on 3M’s ability to resolve Combat Arms litigation, we note multiple relevant successful precedents.
“We lower our price objective to $140 (prior $165) to reflect the general market sell-off and lower peer multiples, based on 13x P/E (prior 15x). This is at a discount to multi peers trading 21x 2022E P/E & consumer goods peers trading at 26x P/E. We reiterate our Underperform rating.”
The MMM stock forecast for 2022 from algorithm-based forecasting service Wallet Investor predicted the share price could continue to fall, reaching $110.30 by the end of November and $105.97 by the end of the year.
The forecaster was also bearish on the long-term outlook for the stock, projecting that it could fall to $44.55 by the end of 2023. The 3M stock forecast for 2025 put the share price at zero, suggesting the company could go bankrupt as a result of the cost of the lawsuits.
If you are looking for a 3M stock forecast to help you decide whether to invest in the company for the long term, it’s important to remember analysts and algorithm-based forecasters can and do get their predictions wrong.
We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose.
FAQs
Is 3M a good stock to buy?
The 3M stock price has fallen sharply as it faces costly legal cases. Whether the drop in the price of its shares makes it a good investment for you is a decision you should make based on research into the company and taking into account your investment goals and portfolio. Remember never to invest more money than you can afford to lose.
Will 3M stock go up or down?
The direction of the MMM share price could depend on the outcome of the ongoing legal cases, the company’s financial performance and overall stock market sentiment, among other factors.
Should I invest in 3M stock?
Only you can decide whether 3M is a suitable investment for you, taking into account your risk tolerance, investing strategy and how much you intend to invest. Always do your own research before making any investment decisions. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose.
