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3M upgraded at Deutsche Bank: US expansion 'could carry on for years'

  • Deutsche Bank upgrades shares of 3M to buy from neutral, arguing that the company's global expansion should see a leg higher after U.S. tax cuts.
  • In addition to the U.S. tax benefits, the Dow component is in the middle of an aggressive cost savings campaign to curb operating expenditures to free up cash.
  • Deutsche analyst John Inch upgraded shares of 3M to overweight and bumped his price target to $275 from $240, implying 20 percent upside from Monday's close.
Source: 3M

3M's revenues have been making gains thanks to the global recovery and its exposure to international markets. A recent tax overhaul in the U.S. could keep the momentum going, according to Deutsche Bank.

"Expansion in the U.S., in particular, could carry on for years given the benefits of U.S. tax reform and consequent elevated reinvestment back into the U.S.," analyst John Inch wrote Tuesday. "We also believe that the recent U.S. heavier industry downturn in 2015 and 2016 bodes favorably for sustaining future industrial expansion as the timing of current industrial cyclical upturn remains relatively early in duration."

Inch upgraded shares of 3M to overweight and bumped his price target to $275 from $240, implying 20 percent upside from Monday's close. The analyst also adjusted his earnings per share expectations upward, now expecting $10.60 in 2018 versus $9.95 previously.

Shares of 3M closed up 1 percent Tuesday.

3M reported earnings in January, when it raised its 2018 earnings outlook and commented on the U.S. tax reform; more than 60 percent of the company's revenues come from outside the United States.

"Just lowering the tax rate in the U.S. to 21 percent is a benefit to a company like 3M," said Nicholas Gangestad, 3M's chief financial officer. "But in addition, the U.S. tax code, the new U.S. tax law, does give some favorable handling to companies that are net exporters out of the U.S."

In addition to the U.S. tax benefits, the Dow component is in the middle of an aggressive cost savings campaign — called "Business Transformation" — designed to curb operating expenditures to free up cash.

"We believe the company remains only in early innings of realizing these cost-saving benefits," Inch added. "Overall, we expect the benefits of Business Transformation to significantly exceed the current $500-700 million of targeted cost savings, while 'supply chain' streamlining/improvements could yield significant revenue synergies."