Industrial conglomerate 3M (NYSE:MMM) has underperformed the broader equity market over the past several years and eroded shareholders’ wealth. Further, the company’s management sees challenges ahead, indicating that its underperformance could continue.
The image below shows the performance of 3M stock relative to the SPDR S&P 500 ETF Trust (SPY), which is considered a proxy for the S&P 500 Index (SPX). In the last five years, 3M stock has lost nearly 51% of its value. During the same period, the SPY gained over 54%.
The weakness in electronics, consumer retail, and the company’s China business continues to weigh on its financial performance. Meanwhile, speaking at Morgan Stanley’s 11th Annual Laguna Conference on Wednesday, the company’s CFO, Monish Patolawala, said that the weakness in China continues. At the same time, the electronics and consumer segment remains weak. Given the soft demand environment, Patolawala said full-year organic sales could stay flat or decline by 3%.
Aside from the weak sales, litigation issues have weighed on 3M’s performance. Let’s leverage TipRanks’ Risk Analysis tool to dig deeper.
3M’s Risk Analysis
The company faces numerous claims and lawsuits in the U.S. It recently agreed to pay $5.5 billion to settle Combat Arms Earplugs litigation. Further, TipRanks’ Risk Analysis tool shows that 3M’s legal and regulatory risks account for 25% of its total risks, well above the sector average of 18.5%.
Moreover, 3M’s macro and political as well as “ability to sell” risks are also higher than the sector average.
Is 3M a Buy, Sell, or Hold?
The weak sales environment and litigation issues keep analysts sidelined on 3M stock. It has received one Buy, 10 Hold, and two Sell recommendations for a Hold consensus rating. MMM stock is down about 12% year-to-date. Meanwhile, analysts’ average price target of $121.08 implies 19.82% upside potential from current levels.
