RBC downgrades 3M to underperform, says inflation and legal issues will hamper stock
It will be a tough road for 3M before its stock can catch up to the broader market, according to RBC Capital Markets. Analyst Deane Dray downgraded 3M to underperform from sector perform, saying in a note to clients Tuesday night that the company had little upside for the foreseeable future. "We are downgrading MMM from Sector Perform to Underperform as the company faces mounting operating and legal challenges in 2022. Ongoing inflation/supply chain pressures have exposed fundamental weaknesses in 3M's price/cost actions that are unlikely to be remedied soon," Dray wrote. Shares of the industrial company underperformed the broader market in 2021 and are still trading near pre-pandemic levels, compared to a roughly 40% gain for the S & P 500. RBC slashed its price target to $166 per share from $199. The new target is nearly 8% below where the stock closed on Tuesday. Shares fell 1% in premarket trading Wednesday. On the legal front, 3M is facing challenges in multiple areas related to its use of a class of chemical substances known as PFAS. The company's "litigation outlook will get much worse before it gets better," according to RBC. "Along with headline risk, we believe 3M will likely have to take more legal reserves to address its mounting PFAS and military hearing-loss litigation," the note said. -CNBC's Michael Bloom contributed to this report.

Traders work under monitors displaying 3M Co. signage on the floor of the New York Stock Exchange (NYSE) in New York. Michael Nagle | Bloomberg | Getty Images