Stock (Symbol) |
3M (MMM) |
Stock Price |
$234 |
Sector |
| Food & Necessities |
Data is as of |
| November 27, 2017 |
Expected to Report |
| Jan 23 |
Company Description |
 3M Company operates in five business segments: Industrial (automotive original equipment manufacturer (OEM) and automotive aftermarket, electronics, appliance, paper and printing, packaging, food and beverage, construction), Safety and Graphics (safety, security and productivity of people), Electronics and Energy (electronics and energy markets, including solutions for electronic devices, telecommunications networks, electrical products, power generation and distribution, infrastructure protection), Health Care (medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, health information systems) and Consumer (consumer retail, office retail, home improvement, building maintenance). Source: Thomson Financial |
Sharek’s Take |
 3M (MMM) is a well thought of company. So well thought of that the stock’s recent success — it’s up 30% YTD — has left it extended and overvalued. Still, the stock is trending higher as economies around the world are expanding. 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%). Like most multinationals, 3M was having trouble growing in past years due to the strong dollar. In 2016 F/X reduced sales by 6.8% year-on-year. Now the USD has come back down and stabilized, and with 60% of business International this dollar is great for profits. Also, economies around the world are doing well, and that’s probably the main reason for the stock’s outperformance. MMM is a safe stock with an Estimated Long-Term Growth Rate of 10% per year plus a 3% dividend that’s increased every year since 1959. Earlier this year it increased the dividend by 6%, the 59th straight year of increases. The company also does enormous stock buybacks, with this year’s expected to be between $2 billion and $3.5 billion. Profits have grown 8% for the last two qtrs and are expected to rise 8% next qtr. Good, but not great. MMM has a P/E of 24. Every year from 2008 to 2012 the median P/E was 14. But that was a time when stocks were cheap. Now I feel MMM should have a P/E of 20. That equates to a 2018 Fair Value of $193, 18% below the recent quote. So I feel this stock is extended and overvalued, but I would like to add it to the Conservative Growth Portfolio if it comes down. |
One Year Chart |
 This chart is incredible. Such a strong move while profits are growing around 8%. Sales rose 6% last qtr, that was pretty damn good. The last 4 qtrs MMM has made $1.88 (missed by $0.01), $2.16 (beat by $0.10), $2.25 (missed by $0.30) and $2.33 (beat by $0.12). So I can’t assume 3M will be beating the street in future qtrs. and qtrly profit Estimates are for 8%, 6%, 6% and 13% profit growth the next 4 qtrs. That’s just par for the course at 3M, so why the HUGE move in the stock? A P/E of 24 seems high. But on a brighter note the Est. LTG did rise from 9% to 10% this qtr. |
Fair Value |
 My Fair Value is 20x earnings, but honestly I’ve missed this move up and that proves I don’t have a firm grasp on this stock. Someone smarter does. My Fair Value for next year is $193 which right now looks like a good entry point if the stock were to drop. |
Bottom Line |
 3M is a quality stock that families and trust funds could own it for decades. The Est. LTG of 10% per year in addition to a 3% yield would be an outstanding return on investment. The stock did that this past decade. But right now I feel MMM is extended on the charts and is overvalued on valuation basis (high P/E). Still, economic growth around the world is pushing the stock higher, and since the trend is your friend I expect the upward momentum to continue into 2018. MMM is on my radar for the Conservative Growth Portfolio and would be a nice addition if it were to fall to $193 or below. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
