3M stock: down by 43% from its peak, is MMM a buy now?

3M (NYSE: MMM) stock price has gone through a rough patch since 2018, undoing some of the gains it made in the past decades. It has plunged by over 43% from a high of $170 in 2018 to today’s $96 as the company faces substantial challenges. In the long-term, however, 3M has been a stellar company as its stock surged by over 345% from its lowest point in 2010.

3M is one of the biggest industrial companies in the US with a market cap of over $52 billion and annual revenues of over $32 billion. It manufactures products that lead their respective industries like safety and industrial, transportation and electronics, and consumer.

3M has been under pressure in the past few years mostly because of PFAS, popularly known as forever chemicals. These are highly dangerous chemicals that are used in the manufacturing of many products like packaging, soaps, and foams.

PFAS chemicals are blamed for various illnesses like cholesterol, cancer, and immune suppression. 3M uses them to manufacture products like firefighting foams, food packages, and Scotchgard Fabric protectors.

As a result, the firm has been facing substantial liabilities that have cost it billions of dollars. In 2023, the company agreed to pay $10 billion to settle these claims. These funds will go to municipalities to improve their water systems,

PFAS has two main implications for 3M. First, it has led to an increase in debt. The most recent results showed that its total long-term debt jumped to over $20 billion, up from $13 billion in December. 

Second, the company needs to spend more money to find alternatives to these chemicals, a situation that is not easy. 3M is also spending about $1 billion in communities where it uses these forever chemicals.

PFAS is not the only issue that 3M is facing. In 2023, the company agreed to pay $6 billion between 2023 and 2029 to resolve litigation of its earplug products.

3M is now implementing its turnaround as the management seeks to position it for growth. As part of this turnaround, the company has separated its healthcare business into a publicly traded company known as Solventum (SOLV). 

SOLV now has a market cap of over $11 billion. 3M received $7.7 billion in cash following the spin-off and its shareholders own 80% of Solventum.

3M has also reduced its dividend as it focuses on boosting its balance sheet as costs rise. As part of its cost-cutting initiative, the company decided to slash about 6,000 workers in 2023, a move that will save it over $900 million annually.

There are early signs that 3M turnaround strategy is working although the process will take time. In its most recent results, the company guided to 2% organic sales growth. It also expects its adjusted operating margin to grow by between 200 and 275 basis points and its EPS to move to between $6.80 and $7.30.

MMM chart by TradingView

Wall Street analysts are relatively muted on 3M, with the average target being at $100.47, a few points above the current $96. 

Turning to the daily chart, we see that the 3M share price has rebounded in the past few weeks. This rebound happened after the stock formed an inverse head and shoulders pattern, a popular reversal sign.

Most recently, the stock has formed a golden cross as the 50-day and 200-day moving averages cross each other. It is also hovering at the 38.2% retracement point. Therefore, there is a likelihood that the stock will continue rising as buyers target the 50% retracement point at $110, which is about 15% above the current level.

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