Introduction
The highly anticipated fourth-quarter results for 3M are set to be announced on Tuesday. Investors are particularly interested in the legal liabilities that have recently impacted the valuation multiple of the company’s stock.
Financial Expectations
According to FactSet, Wall Street analysts are predicting earnings per share (EPS) of $2.31 from sales of $7.7 billion for the quarter. This is a slight increase from last year’s report of $2.28 per share and $8.1 billion in sales.
Looking at the full year, 3M is expected to report EPS of $9.13. At the beginning of 2023, the management initially projected around $8.75 per share, factoring in challenges related to declining mask sales. However, by October’s third-quarter results announcement, guidance had increased to a midpoint of $9.05.
Future Projections
Analysts on Wall Street are projecting an EPS of $9.90 for 2024, which would result in 3M stock trading at approximately 11 times the estimated 2024 earnings. It is worth noting that the general market trades at nearly 20 times earnings.
Impact of Legal Woes
Before being faced with legal challenges, 3M stock was previously valued at about 18 times the estimated earnings for the following year.
Currently, the company is dealing with lawsuits regarding potential faulty earplugs sold to the government. Additionally, there are concerns about a group of chemicals known as PFAS found in groundwater, with multiple companies, including 3M, facing injury lawsuits and cleanup costs.
There is no doubt that investors will be closely monitoring the fourth-quarter results and seeking further information regarding these legal liabilities and their impact on 3M’s future prospects.
Lawsuit Updates and Spinoff Plans
Wolfe Research analyst Nigel Coe anticipates a positive update regarding court approval for settlements in ongoing lawsuits. Notably, there are ongoing discussions about an earplug settlement as well as a potential PFAS settlement with public water utilities.
In addition to these legal matters, Coe is interested in receiving an update on the progress of the spinoff of 3M’s healthcare business, Solventum. The spinoff is currently scheduled for the first half of 2024. Remarkably, healthcare sales in the third quarter amounted to about $2.1 billion, resulting in an impressive operating profit margin of approximately 22%.
Coe currently rates 3M shares as a Hold without assigning a specific price target. It is worth mentioning that only 11% of analysts covering the stock have a Buy rating. This falls well below the average Buy-rating ratio of approximately 55% for stocks in the S&P 500. Furthermore, the average analyst price target for 3M shares stands at approximately $111.
Based on options markets, it is expected that the stock will experience a movement of around 4% following the earnings release, either upwards or downwards. Interestingly, over the past four quarterly reports, the stock has typically moved by an average of about 4%. During this time, it has recorded two instances of growth and two instances of decline.
To provide further insights and discuss the results, a management-led conference call is scheduled for 9 a.m. Eastern time.