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Citi Downgrades 3M Stock—Cold Christmas Ahead?

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Citi downgrades 3M stock

3M stock (MMM) was downgraded today by Citi analyst Andrew Kaplowitz from “buy” to “neutral.” The stock has been under pressure so far in 2019 with a loss of over 10% year-to-date. At the same time, the broad-based S&P 500 Index (SPY) is up over 25%. The industrials-focused Dow Jones is up around 20% over the same period. 3M stock was down 0.65% at 11:08 AM ET on the news. While the S&P 500 Index is close to its all-time high, the traditional bellwether, 3M (MMM) stock, is closer to its 52-week low. After gaining over 9% in the first quarter, 3M stock posted quarterly losses in Q2 and Q3. So far in the current quarter, 3M stock is up marginally.

PFAS litigation is the focus of 3M downgrade

At the heart of the Citi downgrade is a chemical that 3M stopped producing years ago. Per- and polyfluoroalkyl substances were produced by 3M, DuPont, and others for years until the early 2000s. The US Environmental Protection Agency says that exposure to PFAS can be harmful to humans. As a result, there are numerous lawsuits against 3M and others who produced the chemicals. 3M took a charge of over $200 million in the first quarter related to PFAS litigation. However, with new lawsuits being filed against 3M, there may be more in the cards.

The Citi analyst noted that the problem with ascertaining PFAS-related liability is that there is little research and data available on their impact on human health. As a result, nobody knows how to quantify it.

Unresolved trade war and 3M stock

3M has been severely affected by the US-China trade war. 3M’s sales from China and Hong Kong fell 9.4% during the third quarter, leading to a 5% decline in its Asia-Pacific revenues. 3M also lowered its Q4 and 2019 guidance as the macroeconomic environment remained challenging. With additional tariffs coming in effect over the weekend, it could get worse for 3M.

Both sides are giving mixed signals about the prospects for a trade deal. Last week, President Trump added to trade war concerns by saying, “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right.” Today, a senior Chinese official said that “China hopes the negotiations can keep moving forward…and reach a result that could satisfy all parties as soon as possible.”

What other analysts are saying about 3M stock

Analysts are still not too excited about the stock’s prospects. Out of 19 analysts surveyed by Reuters, only three give the stock a “buy” while four are recommending a “sell.” The remaining 12 analysts are cautious about 3M stock with a “hold” rating. With the average target price of just over $170, there is not much upside expected for 3M stock. In fact, it could get worse if PFAS-related liabilities rise or the trade war escalates.

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