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3M is Back to Growing Sales Again

Stock (Symbol)

3M (MMM)

Stock Price

$179

Sector
Food & Necessities
Data is as of
February 12, 2017
Expected to Report
Apr 24-28
Company Description
3m_logo3M 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 – 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. Source: Thomson Financial
Sharek’s Take
David Sharek3M (MMM) is back to growing sales for the first time since 2014, but with a P/E of 21 I doubt the stock has juice left in the tank to go even higher. Known for Post-It notes, Minnesota Mining and Manufacturing got its roots in selling sandpaper, and made its first sale in $1906 for $2 — four years after the company was founded. In 1925 Scotch tape was invented, Scotchgard was first sold in 1956, and Thinsulate thermal insulation was introduced in 1979. It 1980 the yellow Post-It note came to market. Today 3M has five business divisions: Health Care (31% of 2016 sales), Safety & Graphics which includes yellow safety vests (25%), Industrial (23%), Electronics & Energy (21%, and Consumer including Post-It notes (24%). MMM is a safe stock with an Estimated Long-Term Growth Rate of 9% per year plus a 3% dividend that’s increased every year since 1959. Like most multinationals, 3M is having trouble growing with the strong dollar. Although sales grew last qtr, the rate was less than 1%. MMM is getting profit growth from better margins and stock buybacks. Although this is a great buy-and-hold stock it’s expensive at 21x earnings. My Fair Value on this $179 stock is $155.
One Year Chart
I’m surprised to see two qtrs of +10% profit growth during the last 4 qtrs. Good for you 3M! But some of the other figures aren’t great. MMM missed analysts estimates by a penny last qtr, and 2017 estimates have declined from $8.94 to $8.83, $8.66 and $8.62 the last 4 qtrs. Profit growth the next 4 qtrs is Estimated to be 0%, 7%, 7% and 8%. The Est. LTG just went up from 8% to 9%, and although that’s below the 10% I like in conservative stocks, MMM does pay a 3% dividend to make up for it.
Fair Value
There was a long period of time when MMM had a P/E of 14. But during that time stocks had lower valuations overall. I feel MMM deserves a P/E of 18, which makes it overvalued right now. People have flooded into value stocks for the nice yield, but I see growth stocks coming back into favor now.
Bottom Line
3M is a quality stock that families and trust funds could own it for decades. The stock’s done well this past decade, but notice the stock growth has been far better than the profit growth. These figures should be more in-line. I feel investors have flooded into dividend paying stocks because rates were so low, and now that interest rates are rising, stocks like MMM could come down some. 3M does have a lot of positives, like the Est. LTG + yield is 12%. But I feel the stock is overvalued here and I will leave it on the radar for the Conservative Growth Portfolio.
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