In a report released yesterday, Travis Steed from Bank of America Securities reiterated a Hold rating on Solventum Corporation (SOLV – Research Report), with a price target of $85.00.
Travis Steed’s rating is based on several factors that contribute to a cautious outlook for Solventum Corporation. The company has provided a long-range plan (LRP) that suggests an earnings power of approximately $7.50 by 2028, which, when discounted back at 10%, implies that Solventum is trading at about 12 times its earnings. This valuation is on the lower end for the medtech sector, leading to debates on whether the guidance is aggressive, realistic, or conservative. Historically, the CFO has not been known for aggressive guidance, suggesting that there might be some upside if the company executes its plans effectively.
Solventum’s LRP anticipates a 4-5% organic growth rate by 2028, with operating margins expected to be between 23% and 25%. However, the company will face a 200 basis point impact on its cost of goods sold due to the expiration of pricing agreements with 3M. While management is optimistic about potential mergers and acquisitions post-divestiture, these are expected to be small and may only gradually contribute to growth. Given these factors, Travis Steed maintains a Hold rating, reflecting a neutral stance as the company navigates its turnaround strategy.
In another report released yesterday, Mizuho Securities also maintained a Hold rating on the stock with a $85.00 price target.
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