Conglomerates Stocks

3M Co Valuation – April 2019 #MMM

Company Profile (excerpt from Reuters): 3M Company (3M), incorporated on June 25, 1929, is a technology company. The Company is a manufacturer and marketer of a range of products and services. The Company operates through five segments: Industrial; Safety and Graphics; Health Care, and Consumer. 3M products are sold through various distribution channels, including directly to users and through a range of wholesalers, retailers, jobbers, distributors and dealers in a range of trades in various countries around the world. As of December 31, 2016, the Company had operated 81 manufacturing facilities in 29 states. As of December 31, 2016, the Company had operated 122 manufacturing and converting facilities in 36 countries outside the United States.

Downloadable PDF version of this valuation:

ModernGraham Valuation of MMM – April 2019

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 $124,053,974,878 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.89 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 51.31% Pass
6. Moderate PEmg Ratio PEmg < 20 24.00 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 12.96 Fail
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 1.89 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.07 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

EPSmg $8.98
MG Growth Estimate 3.94%
MG Value $147.10
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $130.16
MG Value based on 0% Growth $76.30
Market Implied Growth Rate 7.75%
Current Price $215.41
% of Intrinsic Value 146.44%

3M Co is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $7.11 in 2015 to an estimated $8.98 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.75% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into 3M Co revealed the company was trading above its Graham Number of $62.69. The company pays a dividend of $5.44 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 24, which was below the industry average of 24.48, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-21.84.

3M Co performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$21.84
Graham Number $62.69
PEmg 24.00
Current Ratio 1.89
PB Ratio 12.96
Current Dividend $5.44
Dividend Yield 2.53%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $13,709,000,000
Total Current Liabilities $7,244,000,000
Long-Term Debt $13,411,000,000
Total Assets $36,500,000,000
Intangible Assets $12,708,000,000
Total Liabilities $26,652,000,000
Shares Outstanding (Diluted Average) 592,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.28
Dec2018 $8.89
Dec2017 $7.93
Dec2016 $8.16
Dec2015 $7.58
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 $3.56
Dec2003 $3.02
Dec2002 $2.50
Dec2001 $1.79
Dec2000 $2.23
Dec1999 $2.19

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.98
Dec2018 $8.22
Dec2017 $7.78
Dec2016 $7.56
Dec2015 $7.11
Dec2014 $6.72
Dec2013 $6.17
Dec2012 $5.75
Dec2011 $5.42
Dec2010 $5.14
Dec2009 $4.87
Dec2008 $4.90
Dec2007 $4.69
Dec2006 $4.03
Dec2005 $3.33
Dec2004 $2.88
Dec2003 $2.47

Recommended Reading:

Other ModernGraham posts about the company

3M Co Valuation – November 2018 $MMM
3M Company Valuation – February 2018 $MMM
3M Co. Valuation – December 2016 $MMM
3M Company Valuation – August 2016 $MMM
3M Company Valuation – February 2016 Update $MMM

Other ModernGraham posts about related companies

Illinois Tool Works Inc Valuation – April 2019 #ITW
Honeywell International Inc Valuation – March 2019 #HON
Ingersoll-Rand PLC Valuation – January 2019 $IR
General Electric Co Valuation – November 2018 $GE
3M Co Valuation – November 2018 $MMM
ITT Inc Valuation – July 2018 $ITT
Illinois Tool Works Inc Valuation – June 2018 $ITW
Honeywell International Inc Valuation – June 2018 $HON
General Electric Co Valuation – February 2018 $GE
3M Company Valuation – February 2018 $MMM

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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