3M Under Pressure After Downgrade

3M Company (MMM) is trading lower on Tuesday after Credit Suisse downgraded the Dow component to ‘Neutral’. The downtick ended a weeklong advance that reached within 9 points of May’s 2-year high at 208.95 while triggering a failure at the 50-day moving average, which was remounted last week. More importantly, the turnaround is taking place at the lower edge of an unfilled April 2019 gap between 199 and 220, keeping the long-term downtrend intact.

Respirators and Post-It Notes

The conglomerate makes many of the respirators and N95 masks used by hospital staff and patients during the COVID-19 pandemic. The sales spike underpinned 2020 revenue but comprised just a small portion of the $115.9 billion market cap, yielding a zero annual return for frustrated shareholders. However, their participation in the crisis made headlines, introducing a new supply of investors who knew nothing about 3M products beyond Post-It Notes and Scotch-Brite Dobie Pads.

Credit Suisse analyst John Walsh pulled no punches about ongoing litigation, noting “we do not expect to see significant multiple expansion given: 1) where we are in the cycle, 2) the difficulty in quantifying PFAS, and 3) the CS/investor debate around the Combat Arms earplug lawsuits. Said another way, despite fundamental potential upside from a cyclical upturn in global IP, and potential inventory restocking, we think it will be difficult for 3M to regain its premium multiple.”

Wall Street and Technical Outlook

Wall Street consensus is stuck like glue to a ‘Hold’ rating, based upon 3 ‘Buy’, 1 ‘Overweight’, 14 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $181 to a Street-high $237 while the stock is trading more than $3 below the median $200 target 25-minutes after the opening bell. This mid-range placement suggests that 3M is fairly-valued and unlikely to reward bulls or bears in coming months.

3M posted a two-year high at 259.77 in January 2018 and turned sharply lower, carving a series of lower highs and lower lows into March 2020’s 7-year low at 114.04. It bounced in a slow-motion uptick, finally reaching the January 2020 swing high at the start of 2021. The stock added more than 25 points into May and reversed into a range that’s crisscrossing the .786 Fibonacci retracement of the 2019 – 2020 selling wave and .618 retracement of the three-year downtrend. These harmonic barriers are likely to limit progress into 2022.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.