Valuation: 3M (MMM)

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Company Profile (obtained from Google Finance): 3M Company (3M) is a diversified technology company with a presence in the industrial and transportation; health care; consumer and office; safety, security and protection services; display and graphics, and electro and communications businesses. 3M manages its operations in six business segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics, and Electro and Communications. 3M products are sold through a number of distribution channels, including directly to users and through wholesalers, retailers, jobbers, distributors and dealers in a range of trades in a number of countries worldwide. In April 2012, it acquired CodeRyte Inc. In September 2012, it acquired the business of Federal Signal Technologies Group (FSTech) from Federal Signal Corporation. On November 28, 2012, the Company acquired Ceradyne, Inc.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

MG Value $98
MG Opinion Overvalued
Value Based on 3% Growth $89
Value Based on 0% Growth $52
Market Implied Growth Rate 5.84%
Net Current Asset Value (NCAV) -$3.32
PEmg 20.18
Current Ratio 2.21
PB Ratio 4.71

Key Data:

Balance Sheet – 6/30/2013

Current Assets $13,983,000,000
Current Liabilities $6,335,000,000
Total Debt $4,884,000,000
Total Assets $34,130,000,000
Intangible Assets $9,017,000,000
Total Liabilities $16,254,000,000
Outstanding Shares 683,470,000

Earnings Per Share – Diluted

2013 (estimate) $6.53
2012 $6.32
2011 $5.96
2010 $5.63
2009 $4.52
2008 $4.89
2007 $5.60
2006 $5.06
2005 $4.03
2004 $3.56
2003 $3.02
2002 $2.50
2001 $1.79
2000 $2.32
1999 $2.17

Earnings Per Share – Modern Graham

2013 (estimate) $6.11
2012 $5.75
2011 $5.42
2010 $5.14
2009 $4.87
2008 $4.91

Conclusion:

3M appears to possibly be suitable for an enterprising investor, and it would be worth it for a potential investor to do more research.  The company has strong financials, stable earnings, and a long dividend history.  However, the company may be overvalued by the market at this time.  The market is implying a growth rate of nearly 6%, but a more pragmatic estimate based on the company’s performance over the last ten years would be around 4%.

What are your thoughts on 3M?  Do you think it can achieve a growth rate of 6% or more, as Mr. Market seems to believe?

Photo Credit:  Andrew Magill


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3 responses to “Valuation: 3M (MMM)”

  1. Keith Browning Avatar
    Keith Browning

    Not familiar with the Acronym PEmg. I understand P/E ratio or PEG ratio but not PEmg. Please explain. Thanks.

    1. Benjamin Clark Avatar

      Keith,

      PEmg stands for Price / EPSmg. EPSmg is the normalized earnings per share that we use here at ModernGraham.com. We smooth the earnings per share figure by taking into account earnings over the last 5 years. This helps to eliminate some of the effects that an abnormal year may produce. For more information, see Our Methods.

      Hope that helps!

      -Ben

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