Throwback Thursday: 3M (MMM) in 2008
In 2007-08, I revised the ModernGraham valuation model to follow more closely Benjamin Graham’s methods.  Details about the change can be found in this post. One of the first valuations I wrote utilizing the updated model was on 3M (see the original valuation here).  In summary of that 2008 valuation of 3M, the ModernGraham approach determined the company was not suitable for the Defensive Investor but was suitable for the Enterprising Investor.  In addition, the ModernGraham valuation model returned an estimate of intrinsic value around $170, while the price at the time was $77.  This week as part of Throwback Thursday, we will look at how 3M has done since that 2008 valuation.
Performance vs. the Market
As the following chart demonstrates, 3M has significantly outperformed both the Dow Jones Industrial Average (DJIA) and the S&P 500.
Earnings History
Earnings Per Share
| 2013 (estimate) | $6.68 |
| 2012 | $6.32 |
| 2011 | $5.96 |
| 2010 | $5.63 |
| 2009 | $4.52 |
| 2008 | $4.89 |
Earnings Per Share – ModernGraham
| 2013 (estimate) | $6.16 |
| 2012 | $5.75 |
| 2011 | $5.42 |
| 2010 | $5.14 |
| 2009 | $4.88 |
| 2008 | $4.94 |
The company’s earnings have continued to rise during the period since the valuation.
Dividends
MMM Dividend data by YCharts
A total of $13.60 per share has been paid in dividends since the valuation, which is a total yield of 17.7% on the price at time of valuation. Â The latest dividend was $0.855, which if that is repeated every quarter would be an annual yield of 4.4% on the original price at time of valuation.
Conclusion
The rating of 3M as undervalued back in May of 2008 has turned out very well, as an investment of $1,000 in the company back then would now be worth $1,729.30. Â When you take into account the dividends (assuming the $1,000 investment and $77 price at the time, the investor would have received approximately 13 shares) that total $176.80 from the investment, the total return on the initial investment would be $1,906.10, or a gain of over 90%. Â It’s important to note that the gain would have been even higher if the investor reinvested his dividends, which would amplify the return on the initial investment due to the compounding nature of dividends. Â That’s not bad, considering the market as a whole only rose 25-30% during the time frame.
Going Forward – 3M Today
The latest ModernGraham valuation of 3M was completed on January 21, 2014 (it will be due for another quarterly valuation in a few weeks). Â In summary, we found the company to be suitable for the Enterprising Investor but not the Defensive Investor and overvalued. Â The market was implying an estimate of 6.90% earnings growth, which is higher than the historical growth indicates. Â Based on the historical growth, the ModernGraham valuation model returned an estimate of intrinsic value that was around $100. Â Compared to the $170 estimate from 2008, one can see that the value of the company has fallen over time, likely due to a slow-down in the growth shown.
