On Wednesday, RBC Capital Markets adjusted its price target for 3M Company (NYSE:MMM), a diversified technology company, reducing it to $84 from the previous target of $85. The firm sustained its Underperform rating on the stock.
The adjustment follows the recent filing of Form-10 for 3M's Health Care business, known as Solventum. RBC Capital's analysis suggests that 3M may soon have to confront a challenging decision regarding its high dividend yield, currently at 6.5%. As a company recognized for its long history of dividend payments, the potential for a significant reduction in the dividend for the remaining part of the company (RemainCo) is a concern. RBC Capital estimates that there could be a 50%-70% cut in the dividend for RemainCo, which would adjust the yield to a range of 2.5%-4.0%.
The firm anticipates that Solventum would start with a 3% yield, which is consistent with other healthcare sector companies. This move would potentially save RemainCo around $1.5 billion to $2 billion annually. Despite these considerations, the options market has not yet factored in a potential cut to the dividend.
Additionally, RBC Capital provided an updated market-based estimate for 3M's unaddressed litigation overhang, now valued at approximately $35 billion. This figure represents the potential financial exposure the company faces due to ongoing legal challenges.
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