Jefferies Raises Price Target on 3M (MMM), Sees Acquisition Offering 23% ROIC by Year 4

Jefferies is reiterating its Buy rating on shares of 3M (NYSE: MMM) and is raising its price target from $90 to $94 following the company's decision to acquire Avery Dennison's Office & Consumer products business for $550 million in cash.

The acquisition is expected to close during the second half of 2012 and the firm believes it should be a strong addition to the company. Jefferies forecasts the the acquisition will add an additional $0.03 per share to earnings within the first twelve months and $0.11 or more by the fourth year. Avery Dennison currently has 75 percent market share in private label office products and is second, behind Hewlett Packard (NYSE: HPQ), in office supply brand.

"Adding Avery Dennison’s Office & Consumer Products business to the portfolio should increase scale and broaden 3M’s global presence in office, education and consumer products, " states an analyst at Jefferies. "With synergies, we believe 3M should be able to improve the acquired business’ EBIT margins by more than 800bps in four years."

Jefferies has reaffirmed its FY11 and FY12 EPS estimates of $5.90 and $6.05. Total sales for FY11 and FY12 is estimated to be $29.43 billion and $29.31 billion.

For an analyst ratings summary and ratings history on 3M click here. For more ratings news on 3M click here.

Shares of 3M closed at $83.49 yesterday.

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