3M Stock: Analysts Raise Target Price after Q1 Results

Today, several analysts raised their target price for 3M (NYSE:MMM) stock. The company reported better-than-anticipated first-quarter results on April 28. RBC increased its target price by $5 to $148. Citigroup increased its target price to $170 from $146. Meanwhile, Credit Suisse lifted 3M’s target price to $180 from $165, while Deutsche Bank increased it to $163 from $158.

3M’s first-quarter sales grew 2.7% YoY (year-over-year) to $8.08 billion. Analysts predicted sales of $7.91 billion. The company’s top line gained from acquisitions within its Healthcare segment. Excluding the impact of acquisitions and divestitures, the organic sales growth (adjusted for currency) was 0.3%.

COVID-19 impacts 3M’s sales

The COVID-19 pandemic had a mixed impact on 3M’s overall product portfolio. The company experienced demand in categories like personal safety, home improvement, retail cleaning products, food safety, and biopharma filtration.

Within the personal safety portfolio, the company has been facing a significant rise in the demand for N95 respirators or masks. Since January, 3M doubled its worldwide production of N95 masks to 1.1 billion annually or about 100 million per month, which included 35 million in the US. The company plans to make more investments to double its production to 2 billion by the end of 2020.

Meanwhile, COVID-19 had a negative impact on 3M’s other product categories like oral care, automotive, aerospace, and general industrial.

3M’s Q1 earnings

3M’s first-quarter adjusted EPS fell by 2.7% YoY to $2.16. However, the company beat analysts’ EPS forecast of $2.03. Negative foreign currency fluctuations and higher taxes hurt 3M’s earnings. Also, costs related to acquisitions and divestitures (mainly the Acelity acquisition) had a $0.05 negative impact on the bottom line. A lower share count added $0.03 to the first-quarter EPS.

Updates amid COVID-19

Like several other companies, 3M withdrew its 2020 guidance due to uncertainty associated with the COVID-19 pandemic. The company also suspended its share repurchase program. However, 3M will pay dividends. The company also lowered its capital expenditure budget to about $1.3 billion compared to the previously planned range of $1.6 billion–$1.8 billion for 2020.

The company expects weak second-quarter results based on the slowdown experienced in the first several weeks of the quarter. Notably, the organic sales growth through late April fell at a mid-teens rate. The company expects the demand for its respirators to contribute about 150 basis points to the second-quarter sales growth.

3M is also cutting down on its discretionary spending to maintain financial flexibility amid the crisis. The company expects to generate $350 million–$450 million of cost savings in the second quarter.

3M stock has fallen 10.7% year-to-date as of April 28. In comparison, Honeywell International (NYSE:HON) and General Electric (NYSE:GE) stocks have fallen 19.3% and 39.1%, respectively. Currently, the average 12-month target price of $148.87 implies an additional downside of 5% in 3M stock.

Meanwhile, General Electric reported a 7.6% YoY decline in its first-quarter revenue to $20.52 billion. Analysts expected revenue of $20.21 billion. The decline in the top line reflected the impact of COVID-19 on General Electric’s businesses—mainly on aviation. The company’s adjusted EPS of $0.05 lagged analysts’ estimate of $0.08.