3M Stock Sliding After RBC Downgrade

Analysts are overwhelmingly bearish on MMM

by Karee Venema

Published on Jul 9, 2019 at 9:43 AM

RBC downgraded 3M Co (NYSE:MMM) to "sector perform" from "outperform," and slashed its price target by $31 to $176. The brokerage firm called several guidance cuts in recent quarters "unsettling," and tapped legal issues surrounding PFAS contamination as an "unquantifiable risk."

This skepticism toward 3M stock is shared by other members of the brokerage bunch, with all nine in coverage maintaining a "hold" or worse recommendation. Plus, the average 12-month price target of $179.44 is a slim 6% premium to last night's close at $169.19.

Options traders, on the other hand, have been unusually bullish toward the Dow stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MMM's 50-day call/put volume ratio of 1.96 ranks in the 100th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

Drilling down, the July 200 strike is home to peak call open interest, and data from the major options exchanges confirms significant buy-to-open activity here. In other words, call buyers are betting on a breakout above $200 by front-month options expiration at the close next Friday, July 19.

The last time MMM shares closed a week above $200 was in late April -- just ahead of a massive post-earnings bear gap. More recently, the stock's rally off its early June three-year low of $159.37 was contained by its descending 50-day moving average. Today, 3M stock is down 1.9% at $165.95 in early trading. Should the equity fail to bounce back above $200 by next Friday's close, the most those call buyers stand to lose is the initial premium paid.

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