Morgan Stanley lifts 3M rating, sees a more constructive setup

Investing.com -- Morgan Stanley has upgraded 3M (NYSE: MMM) to Equal-weight from Underweight and raised its price target for the stock to $160 from $130, saying that softer expectations, a lower valuation, and early signs of a management-led turnaround create a “more constructive” setup for the stock.

In the note, Morgan Stanley analyst Christopher Snyder said, “We now see a more constructive set-up for the equity relative to the view detailed in our September 2024 Underweight launch.”

He added that both “buyside and sellside expectations have softened,” and that “forward organic estimates are well calibrated.”

Morgan Stanley pointed to “signs that new management turnaround initiatives are taking hold,” arguing that 3M is now positioned “to outgrow the broader macro, a reversal from history and providing scope for revisions and re-rating.”

The firm noted that the company’s organic growth improved to 3.2% in the third quarter, up from 1.5% in the first half of the year, driven by gains in new product introductions and better delivery performance.

Snyder wrote that new products launched within the past five years grew 30% in the third quarter, while “on-time and in-full delivery” rose 200 basis points from the prior quarter to about 92%. Cross-selling opportunities also doubled from the second quarter.

While acknowledging risks such as potential channel destocking in China, Morgan Stanley said 3M appears relatively well positioned, with self-help initiatives that are not macro dependent.

The firm concluded that the turnaround under CEO Bill Brown “is showing an ability to bifurcate growth from the macro,” justifying a higher multiple and “a higher quality, more durable business.”

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