MMM - Solventum: 3 Reasons Why This Healthcare Spinoff Is A Sell

2024-06-12 09:23:28 ET

Summary

• Solventum, the recently spun off healthcare arm of 3M, faces challenges in value creation due to stagnant growth, heavy debt burden, and entanglement with its former parent.
• The company's revenue growth is sluggish despite the significant growth potential of its markets.
• Solventum has a high level of debt, limiting its strategic flexibility and potential for returning capital to shareholders.

Solventum Corporation ( SOLV ) has had a rocky start since its spinoff from 3M ( MMM ). Despite beating Q1 estimates, the stock continues to remain under pressure due to deeper issues like stagnant growth, a heavy debt burden, and entanglement with 3M. With my analysis suggesting overvaluation for the stock, investors should approach SOLV with caution, as turnaround efforts may take years to bear fruit.

Introduction

Corporate spinoffs have come a long way, once viewed as attractive investment opportunities, which often outperformed its established peers, but now the narrative is changing, at least in the healthcare sector. Recent healthcare spin-offs like Kenvue ( KVUE ), Haleon ( HLN ) and now Solventum have struggled to impress investors....

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