Conglomerates Stocks

3M Company Valuation – February 2016 Update $MMM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how 3M Company (MMM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): 3M Company is a diversified technology company. The Company operates in five business segments: Industrial, which serves a range of markets, such as automotive original equipment manufacturer (OEM) and automotive aftermarket, electronics, appliance, paper and printing, packaging, food and beverage, and construction; Safety and Graphics, which serves a range of markets for the safety, security and productivity of people, facilities and systems; Electronics and Energy, which serves customers in electronics and energy markets, including solutions for electronic devices, telecommunications networks, electrical products, power generation and distribution, and infrastructure protection; Health Care, which serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, and health information systems, and Consumer, which serves markets that include consumer retail, office retail, home improvement, building maintenance and other markets.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MMM – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $91,496,121,934 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.54 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 54.10% Pass
6. Moderate PEmg Ratio PEmg < 20 20.08 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.91 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.26 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MMM value Chart February 2016

EPSmg $7.51
MG Growth Estimate 4.60%
MG Value $132.97
Opinion Overvalued
MG Value based on 3% Growth $108.95
MG Value based on 0% Growth $63.87
Market Implied Growth Rate 5.79%
Current Price $150.84
% of Intrinsic Value 113.44%

3M Company qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $5.75 in 2012 to an estimated $7.51 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 5.79% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Stage 3: Information for Further Research

MMM Charts February 2016

Net Current Asset Value (NCAV) -$16.22
Graham Number $58.27
PEmg 20.08
Current Ratio 1.54
PB Ratio 7.91
Dividend Yield 2.61%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $10,986,000,000
Total Current Liabilities $7,118,000,000
Long-Term Debt $8,753,000,000
Total Assets $32,718,000,000
Intangible Assets $11,850,000,000
Total Liabilities $20,971,000,000
Shares Outstanding (Diluted Average) 615,710,000

Earnings Per Share History

Next Fiscal Year Estimate $7.91
Dec2015 $7.73
Dec2014 $7.49
Dec2013 $6.72
Dec2012 $6.32
Dec2011 $5.96
Dec2010 $5.63
Dec2009 $4.52
Dec2008 $4.89
Dec2007 $5.60
Dec2006 $5.06
Dec2005 $3.98
Dec2004 $3.75
Dec2003 $3.02
Dec2002 $2.50
Dec2001 $1.79
Dec2000 $2.23
Dec1999 $2.19
Dec1998 $1.51
Dec1997 $2.53
Dec1996 $1.83

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.51
Dec2015 $7.16
Dec2014 $6.72
Dec2013 $6.17
Dec2012 $5.75
Dec2011 $5.42
Dec2010 $5.14
Dec2009 $4.87
Dec2008 $4.92
Dec2007 $4.71
Dec2006 $4.07
Dec2005 $3.38
Dec2004 $2.94
Dec2003 $2.47
Dec2002 $2.15
Dec2001 $2.00
Dec2000 $2.09

Recommended Reading:

Other ModernGraham posts about the company

15 Best Stocks For Value Investors This Week – 9/12/15
21 Companies in the Spotlight This Week – 5/9/15
3M Company Quarterly Valuation – May 2015 $MMM
34 Companies in the Spotlight This Week – 2/7/15
3M Company Quarterly Valuation – February 2015 $MMM

Other ModernGraham posts about related companies

Raven Industries Inc Valuation – January 2016 Update $RAVN
Illinois Tool Works Inc Valuation – January 2016 Update $ITW
E I du Pont de Nemours & Co Valuation – November 2015 Update $DD
E I Du Pont de Nemours & Company Analysis – August 2015 Update $DD
E. I. Du Pont De Nemours and Company Quarterly Valuation – May 2015 $DD
Honeywell International Inc. Valuation – October 2015 Update $HON
Raven Industries Inc. Analysis – October 2015 Update $RAVN
Illinois Tool Works Inc. Analysis – October 2015 Update $ITW
3M Company Analysis – September 2015 Update $MMM
Honeywell International Inc. Analysis – July 2015 Update $HON

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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