3M (MMM) is known for Post-It notes and many different types of tape, but Minnesota Mining and Manufacturing first got started selling sandpaper, making its first sale in $1906 for $2, four years after the company was founded. It was in 1925 that Scotch tape was invented. Other inventions include Scotchgard, the fabric upholstery protector, and Thinsulate thermal insulation in 1979. It wasn’t until 1980 when the yellow Post-It note was introduced. Today the company has five divisions: Consumer, Electronics & Energy, Health Care, Industrial, and lastly Safety & Graphics, which makes the Scotchlite Reflective Material you see city workers using.
In 2014 3M had $32 billion in sales, with $20 billion coming outside the US. And lately that’s been the problem. Profit growth was only 3% and 6% the past 2 qtrs as foreign exchange rates have hit both sales and profits. Sales would have risen 2% last qtr but instead fell 6% due to the strong dollar. Profit margins are good because commodity prices are low, and the company buys back a lot of its own stock.
Ten Year Chart
Last qtr MMM had profit growth of 6%, but the $2.02 the company made would have been $0.12 higher if it not for F/X. That would have made profit growth 12% and everyone would be happy.
During the last ten years the stock’s grown at 8% per year and with dividends investors have made 142% on their money. Like many companies, MMM had profits decline in 2008 and 2009 due to the recession.
Profit History
Maybe I’m being a little bearish on this stock with the upside being limited due to F/X, but 3M does have a high P/E by its historical standards. 19 times earnings. I’d rather pay 14x which I could have from 2008-2012. Really at this point 17x would be nice considering the high multiples in the stock market nowadays.
Sharek’s Take
3M is a solid safe selection for conservative accounts, but the stock’s a little high considering the issues its having with the strong dollar. MMM has a yield of 2.7% and an Estimated Long Term Growth Rate of 9%, implying a 12% total annual return, but 19x earnings seems a bit rich. Still, the dividend is solid as management upped it in February and that marked the 57th straight year of dividend increases. The stock also carries Value Line’s top safety rating of 1. All this being said, I’d rather wait for a little better price point before investing. $133 to $141 would be my buy range. If MMM doesn’t come down that much I would recommend investors get in by the end of the year, as 2016 looks good.
View the One Year Chart here. View the Earnings Table here.
