Shares of 3M Co. experienced a boost in Monday’s session as Julian Mitchell, an analyst at Barclays, overturned his bearish call on the industrial company.
Potential Progress on Legal Liabilities
Mitchell acknowledged that one of the primary reasons for their previous “underweight” rating on 3M was the increasing legal liabilities the company had faced in recent years. However, he now believes that the coming months may bring some positive developments on this front.
Investors can anticipate an update in March 2024 regarding the target threshold for plaintiff opt-ins to 3M’s proposed settlement for its Combat Arms litigation. Furthermore, the company has secured preliminary court approval for its Public Water Supplier agreement in relation to its PFAS litigation.
Promising Cyclical Exposures
Mitchell also highlighted the “quite attractive” cyclical exposures of 3M. The company has experienced a slowdown in top-line performance lately, predominantly due to its significant exposure to areas such as electronics and consumer businesses. Mitchell predicts that these markets are poised to see improvement in 2024, at least relative to the average performance across multiple industries.
Potential Operating Margin Expansion
With years of declines behind them, 3M may also witness “outsized operating-margin expansion” as top-line results improve and cost-cutting measures start to pay off.
Remaining Cautious
Despite his optimism, Mitchell did not upgrade his rating on the stock to a bullish stance. He cited two main reasons for this decision. Firstly, in his 23 years on the sell side, he has never raised a rating by two notches. Additionally, there is still uncertainty around the company’s legal battles, and the rebound in cyclical sales for 3M may not be as significant since the company typically does not experience sharp revenue upticks.
As a result of the analyst’s positive outlook, shares of 3M rose 3.8% during Monday’s afternoon trading session.
