Shares of the industrial conglomerate 3M (NYSE:MMM) closed 5% higher on March 12. Investors cheered the company’s move to hire a new CEO and reshuffle its leadership team. The company appointed William M. Brown as CEO, effective May 1, 2024. He will succeed Michael Roman, who will assume the role of Executive Chairman of the 3M Board of Directors, effective May 1, 2024.
Investors’ enthusiasm over the news indicates that they were dissatisfied with 3M’s stock performance over the past several years under Roman. For instance, the graph below shows the performance of 3M stock compared to the SPDR S&P 500 ETF Trust (SPY), the proxy for the S&P 500 Index (SPX). In the last five years, 3M stock has lost nearly 53% of its value, significantly underperforming SPY’s gain of 84%.
3M’s underperformance reflects continued weakness in some end markets, including consumer retail and electronics. Further, softness in China’s business continues to weigh on its financial performance.
What is the Future of 3M Stock?
3M is optimizing its portfolio, driving productivity, and reducing inventory. Last week, 3M approved the spinoff of its Health Care business into a new entity named Solventum Corporation. Solventum will be listed on the New York Stock Exchange as an independent company under the “SOLV” ticker.
Shareholders of 3M as of March 18 will receive one share of Solventum for every four shares of 3M held. Additionally, the company will maintain 19.9% ownership in Solventum, with plans to sell this stake within five years post-spinoff.
While these measures will likely support its financials in the long term, near-term weakness in the consumer and semiconductor business and softness in China keep analysts sidelined. With eight Holds and one Sell, 3M stock has a Hold consensus rating. Analysts’ average price target on MMM stock is $109.78, implying 11.2% upside potential from current levels.
