Intrinsic value of 3M - MMM

Previous Close

$207.92

  Intrinsic Value

$143.59

stock screener

  Rating & Target

sell

-31%

  Value-price divergence*

-23%

Previous close

$207.92

 
Intrinsic value

$143.59

 
Up/down potential

-31%

 
Rating

sell

 
Value-price divergence*

-23%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MMM stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 123.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -0.55
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
Revenue, $m
  30,109
  31,223
  32,419
  33,698
  35,064
  36,518
  38,064
  39,704
  41,442
  43,282
  45,229
  47,285
  49,456
  51,748
  54,164
  56,711
  59,395
  62,222
  65,198
  68,330
  71,627
  75,095
  78,743
  82,579
  86,613
  90,854
  95,312
  99,997
  104,922
  110,096
  115,534
Variable operating expenses, $m
 
  24,039
  24,925
  25,872
  26,884
  27,960
  29,105
  30,320
  31,607
  32,970
  34,411
  35,017
  36,625
  38,322
  40,112
  41,998
  43,985
  46,079
  48,283
  50,603
  53,044
  55,612
  58,314
  61,155
  64,142
  67,283
  70,584
  74,054
  77,701
  81,533
  85,559
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  22,886
  24,039
  24,925
  25,872
  26,884
  27,960
  29,105
  30,320
  31,607
  32,970
  34,411
  35,017
  36,625
  38,322
  40,112
  41,998
  43,985
  46,079
  48,283
  50,603
  53,044
  55,612
  58,314
  61,155
  64,142
  67,283
  70,584
  74,054
  77,701
  81,533
  85,559
Operating income, $m
  7,223
  7,184
  7,494
  7,826
  8,181
  8,558
  8,959
  9,384
  9,835
  10,313
  10,818
  12,268
  12,831
  13,426
  14,052
  14,713
  15,410
  16,143
  16,915
  17,728
  18,583
  19,483
  20,429
  21,425
  22,471
  23,571
  24,728
  25,944
  27,221
  28,564
  29,974
EBITDA, $m
  8,697
  8,932
  9,275
  9,641
  10,031
  10,447
  10,889
  11,359
  11,856
  12,382
  12,939
  13,528
  14,149
  14,804
  15,496
  16,224
  16,992
  17,801
  18,652
  19,548
  20,491
  21,484
  22,527
  23,625
  24,779
  25,992
  27,267
  28,608
  30,017
  31,497
  33,052
Interest expense (income), $m
  194
  375
  404
  434
  466
  500
  537
  576
  617
  661
  707
  756
  808
  862
  920
  981
  1,045
  1,112
  1,184
  1,258
  1,337
  1,420
  1,507
  1,599
  1,696
  1,797
  1,904
  2,016
  2,134
  2,258
  2,388
Earnings before tax, $m
  7,053
  6,809
  7,091
  7,392
  7,715
  8,057
  8,422
  8,809
  9,218
  9,652
  10,111
  11,512
  12,023
  12,563
  13,132
  13,732
  14,365
  15,030
  15,731
  16,469
  17,246
  18,063
  18,922
  19,825
  20,775
  21,774
  22,824
  23,927
  25,087
  26,306
  27,586
Tax expense, $m
  1,995
  1,838
  1,914
  1,996
  2,083
  2,176
  2,274
  2,378
  2,489
  2,606
  2,730
  3,108
  3,246
  3,392
  3,546
  3,708
  3,878
  4,058
  4,248
  4,447
  4,656
  4,877
  5,109
  5,353
  5,609
  5,879
  6,162
  6,460
  6,774
  7,103
  7,448
Net income, $m
  5,050
  4,970
  5,176
  5,397
  5,632
  5,882
  6,148
  6,430
  6,729
  7,046
  7,381
  8,404
  8,777
  9,171
  9,587
  10,025
  10,486
  10,972
  11,484
  12,023
  12,589
  13,186
  13,813
  14,472
  15,166
  15,895
  16,662
  17,467
  18,314
  19,203
  20,138

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,678
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  32,906
  31,348
  32,549
  33,834
  35,205
  36,665
  38,217
  39,863
  41,609
  43,456
  45,410
  47,475
  49,655
  51,955
  54,381
  56,939
  59,633
  62,471
  65,460
  68,605
  71,915
  75,397
  79,059
  82,911
  86,961
  91,219
  95,695
  100,399
  105,343
  110,539
  115,998
Adjusted assets (=assets-cash), $m
  30,228
  31,348
  32,549
  33,834
  35,205
  36,665
  38,217
  39,863
  41,609
  43,456
  45,410
  47,475
  49,655
  51,955
  54,381
  56,939
  59,633
  62,471
  65,460
  68,605
  71,915
  75,397
  79,059
  82,911
  86,961
  91,219
  95,695
  100,399
  105,343
  110,539
  115,998
Revenue / Adjusted assets
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
  0.996
Average production assets, $m
  10,976
  11,396
  11,833
  12,300
  12,798
  13,329
  13,893
  14,492
  15,126
  15,798
  16,508
  17,259
  18,052
  18,888
  19,770
  20,700
  21,679
  22,711
  23,797
  24,941
  26,144
  27,410
  28,741
  30,141
  31,614
  33,162
  34,789
  36,499
  38,296
  40,185
  42,170
Working capital, $m
  5,507
  3,934
  4,085
  4,246
  4,418
  4,601
  4,796
  5,003
  5,222
  5,454
  5,699
  5,958
  6,232
  6,520
  6,825
  7,146
  7,484
  7,840
  8,215
  8,610
  9,025
  9,462
  9,922
  10,405
  10,913
  11,448
  12,009
  12,600
  13,220
  13,872
  14,557
Total debt, $m
  11,695
  11,532
  12,392
  13,312
  14,294
  15,339
  16,450
  17,629
  18,879
  20,202
  21,601
  23,079
  24,640
  26,287
  28,024
  29,855
  31,785
  33,817
  35,956
  38,208
  40,578
  43,071
  45,693
  48,451
  51,351
  54,400
  57,604
  60,973
  64,513
  68,233
  72,141
Total liabilities, $m
  22,608
  22,445
  23,305
  24,225
  25,207
  26,252
  27,363
  28,542
  29,792
  31,115
  32,514
  33,992
  35,553
  37,200
  38,937
  40,768
  42,698
  44,730
  46,869
  49,121
  51,491
  53,984
  56,606
  59,364
  62,264
  65,313
  68,517
  71,886
  75,426
  79,146
  83,054
Total equity, $m
  10,298
  8,903
  9,244
  9,609
  9,998
  10,413
  10,854
  11,321
  11,817
  12,342
  12,897
  13,483
  14,102
  14,755
  15,444
  16,171
  16,936
  17,742
  18,591
  19,484
  20,424
  21,413
  22,453
  23,547
  24,697
  25,906
  27,177
  28,513
  29,917
  31,393
  32,943
Total liabilities and equity, $m
  32,906
  31,348
  32,549
  33,834
  35,205
  36,665
  38,217
  39,863
  41,609
  43,457
  45,411
  47,475
  49,655
  51,955
  54,381
  56,939
  59,634
  62,472
  65,460
  68,605
  71,915
  75,397
  79,059
  82,911
  86,961
  91,219
  95,694
  100,399
  105,343
  110,539
  115,997
Debt-to-equity ratio
  1.136
  1.300
  1.340
  1.390
  1.430
  1.470
  1.520
  1.560
  1.600
  1.640
  1.670
  1.710
  1.750
  1.780
  1.810
  1.850
  1.880
  1.910
  1.930
  1.960
  1.990
  2.010
  2.040
  2.060
  2.080
  2.100
  2.120
  2.140
  2.160
  2.170
  2.190
Adjusted equity ratio
  0.258
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,050
  4,970
  5,176
  5,397
  5,632
  5,882
  6,148
  6,430
  6,729
  7,046
  7,381
  8,404
  8,777
  9,171
  9,587
  10,025
  10,486
  10,972
  11,484
  12,023
  12,589
  13,186
  13,813
  14,472
  15,166
  15,895
  16,662
  17,467
  18,314
  19,203
  20,138
Depreciation, amort., depletion, $m
  1,474
  1,748
  1,780
  1,814
  1,851
  1,890
  1,931
  1,974
  2,021
  2,070
  2,122
  1,260
  1,318
  1,379
  1,443
  1,511
  1,582
  1,658
  1,737
  1,820
  1,908
  2,001
  2,098
  2,200
  2,308
  2,421
  2,539
  2,664
  2,795
  2,933
  3,078
Funds from operations, $m
  6,619
  6,719
  6,956
  7,211
  7,482
  7,771
  8,079
  8,405
  8,750
  9,116
  9,502
  9,663
  10,095
  10,550
  11,030
  11,536
  12,069
  12,630
  13,221
  13,843
  14,498
  15,186
  15,911
  16,673
  17,474
  18,316
  19,201
  20,131
  21,109
  22,136
  23,216
Change in working capital, $m
  -43
  140
  151
  161
  172
  183
  195
  207
  219
  232
  245
  259
  274
  289
  304
  321
  338
  356
  375
  395
  415
  437
  460
  483
  508
  534
  562
  590
  620
  652
  685
Cash from operations, $m
  6,662
  6,578
  6,806
  7,050
  7,310
  7,588
  7,884
  8,198
  8,531
  8,884
  9,257
  9,404
  9,821
  10,261
  10,725
  11,215
  11,730
  12,274
  12,846
  13,448
  14,082
  14,749
  15,451
  16,189
  16,965
  17,781
  18,639
  19,541
  20,488
  21,484
  22,531
Maintenance CAPEX, $m
  0
  -801
  -832
  -864
  -898
  -934
  -973
  -1,014
  -1,058
  -1,104
  -1,153
  -1,205
  -1,260
  -1,318
  -1,379
  -1,443
  -1,511
  -1,582
  -1,658
  -1,737
  -1,820
  -1,908
  -2,001
  -2,098
  -2,200
  -2,308
  -2,421
  -2,539
  -2,664
  -2,795
  -2,933
New CAPEX, $m
  -1,420
  -420
  -436
  -467
  -498
  -531
  -564
  -599
  -634
  -672
  -710
  -751
  -793
  -836
  -882
  -930
  -980
  -1,032
  -1,086
  -1,143
  -1,203
  -1,266
  -1,331
  -1,400
  -1,472
  -1,548
  -1,627
  -1,710
  -1,797
  -1,889
  -1,985
Cash from investing activities, $m
  -1,403
  -1,221
  -1,268
  -1,331
  -1,396
  -1,465
  -1,537
  -1,613
  -1,692
  -1,776
  -1,863
  -1,956
  -2,053
  -2,154
  -2,261
  -2,373
  -2,491
  -2,614
  -2,744
  -2,880
  -3,023
  -3,174
  -3,332
  -3,498
  -3,672
  -3,856
  -4,048
  -4,249
  -4,461
  -4,684
  -4,918
Free cash flow, $m
  5,259
  5,357
  5,537
  5,719
  5,914
  6,123
  6,347
  6,585
  6,839
  7,108
  7,394
  7,449
  7,769
  8,107
  8,465
  8,842
  9,240
  9,660
  10,102
  10,568
  11,059
  11,575
  12,119
  12,691
  13,293
  13,926
  14,591
  15,291
  16,027
  16,800
  17,613
Issuance/(repayment) of debt, $m
  1,043
  809
  860
  920
  982
  1,045
  1,111
  1,179
  1,250
  1,323
  1,399
  1,478
  1,561
  1,647
  1,737
  1,831
  1,929
  2,032
  2,140
  2,252
  2,370
  2,493
  2,622
  2,758
  2,900
  3,049
  3,205
  3,368
  3,540
  3,720
  3,909
Issuance/(repurchase) of shares, $m
  -2,949
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,948
  809
  860
  920
  982
  1,045
  1,111
  1,179
  1,250
  1,323
  1,399
  1,478
  1,561
  1,647
  1,737
  1,831
  1,929
  2,032
  2,140
  2,252
  2,370
  2,493
  2,622
  2,758
  2,900
  3,049
  3,205
  3,368
  3,540
  3,720
  3,909
Total cash flow (excl. dividends), $m
  3,278
  6,166
  6,397
  6,639
  6,896
  7,169
  7,458
  7,764
  8,088
  8,431
  8,793
  8,927
  9,330
  9,754
  10,202
  10,673
  11,169
  11,692
  12,241
  12,820
  13,428
  14,068
  14,741
  15,449
  16,193
  16,974
  17,796
  18,660
  19,567
  20,520
  21,522
Retained Cash Flow (-), $m
  1,131
  -311
  -341
  -365
  -389
  -415
  -441
  -468
  -496
  -525
  -555
  -586
  -619
  -653
  -689
  -726
  -765
  -806
  -849
  -893
  -940
  -989
  -1,040
  -1,094
  -1,150
  -1,209
  -1,271
  -1,336
  -1,404
  -1,476
  -1,550
Prev. year cash balance distribution, $m
 
  1,706
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  7,561
  6,056
  6,274
  6,506
  6,754
  7,017
  7,297
  7,593
  7,906
  8,238
  8,341
  8,711
  9,101
  9,513
  9,947
  10,404
  10,886
  11,393
  11,927
  12,488
  13,080
  13,701
  14,355
  15,042
  15,765
  16,525
  17,324
  18,163
  19,045
  19,971
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
 
  7,243
  5,533
  5,443
  5,334
  5,205
  5,056
  4,886
  4,696
  4,485
  4,256
  3,895
  3,647
  3,386
  3,117
  2,841
  2,564
  2,290
  2,021
  1,762
  1,516
  1,287
  1,076
  886
  718
  571
  447
  342
  257
  189
  135
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

3M Company operates as a diversified technology company worldwide. The company’s Industrial segment offers tapes; coated, non-woven, and bonded abrasives; adhesives; advanced ceramics; sealants; specialty materials; separation and purification products; closure systems for personal hygiene products; acoustic systems products; automotive components; and abrasion-resistant films, and paint finishing and detailing products. Its Safety and Graphics Business segment provides personal protection products, traffic safety and security products, commercial graphics systems, commercial cleaning and protection products, floor matting, roofing granules for asphalt shingles, and fall protection products. The company’s Health Care segment offers medical and surgical supplies, skin health and infection prevention products, inhalation and transdermal drug delivery systems, dental and orthodontic products, health information systems, and food safety products. Its Electronics and Energy segment provides optical films; packaging and interconnection devices; insulating and splicing solutions; touch screens and touch monitors; renewable energy component solutions; and infrastructure protection products. The company’s Consumer segment offers sponges, scouring pads, high-performance cloths, repositionable notes, indexing systems, home improvement and care products, protective materials, and consumer and office tapes and adhesives. The company serves automotive, electronics and energy, appliance, paper and printing, packaging, food and beverage, construction, medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, health information systems, food manufacturing and testing, consumer and office retail, office business to business, home improvement, drug and pharmacy retail, and other markets directly, as well as through wholesalers, retailers, jobbers, distributors, and dealers. The company was founded in 1902 and is headquartered in St. Paul, Minnesota.

FINANCIAL RATIOS  of  3M (MMM)

Valuation Ratios
P/E Ratio 24.6
Price to Sales 4.1
Price to Book 12
Price to Tangible Book
Price to Cash Flow 18.6
Price to Free Cash Flow 23.7
Growth Rates
Sales Growth Rate -0.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.8%
Cap. Spend. - 3 Yr. Gr. Rate -3.1%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 104.1%
Total Debt to Equity 113.6%
Interest Coverage 37
Management Effectiveness
Return On Assets 15.8%
Ret/ On Assets - 3 Yr. Avg. 15.6%
Return On Total Capital 22.8%
Ret/ On T. Cap. - 3 Yr. Avg. 22.8%
Return On Equity 46.5%
Return On Equity - 3 Yr. Avg. 39.4%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 50.1%
Gross Margin - 3 Yr. Avg. 49.3%
EBITDA Margin 29%
EBITDA Margin - 3 Yr. Avg. 27.9%
Operating Margin 24%
Oper. Margin - 3 Yr. Avg. 23.1%
Pre-Tax Margin 23.4%
Pre-Tax Margin - 3 Yr. Avg. 22.7%
Net Profit Margin 16.8%
Net Profit Margin - 3 Yr. Avg. 16.1%
Effective Tax Rate 28.3%
Eff/ Tax Rate - 3 Yr. Avg. 28.7%
Payout Ratio 53%

MMM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MMM stock intrinsic value calculation we used $30109 million for the last fiscal year's total revenue generated by 3M. The default revenue input number comes from 2016 income statement of 3M. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MMM stock valuation model: a) initial revenue growth rate of 3.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.4%, whose default value for MMM is calculated based on our internal credit rating of 3M, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of 3M.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MMM stock the variable cost ratio is equal to 77.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MMM stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for 3M.

Corporate tax rate of 27% is the nominal tax rate for 3M. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MMM stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MMM are equal to 36.5%.

Life of production assets of 13.7 years is the average useful life of capital assets used in 3M operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MMM is equal to 12.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $10298 million for 3M - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 594.438 million for 3M is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of 3M at the current share price and the inputted number of shares is $123.6 billion.

Management's discussion and analysis

3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. As described in Note 16,  effective in the first quarter of 2016, 3M made a product line reporting change involving two of its business segments. Segment information presented herein reflects the impact of these changes for all periods presented. 3M manages its operations in five operating business segments: Industrial; Safety and Graphics; Health Care; Electronics and Energy; and Consumer. From a geographic perspective, any references to EMEA refer to Europe, Middle East and Africa on a combined basis. Any references to “Membrana” refer to the former Separations Media business acquired by 3M from Polypore in 2015.

Year 2016 versus Year 2015 EPS:

For total year 2016, net income attributable to 3M was $5.050 billion, or $8.16 per diluted share, compared to $4.833 billion, or $7.58 per diluted share, in 2015, an increase of 7.7 percent on a per diluted share basis. Operational benefits increased earnings, helped by lower defined benefit pension and postretirement expenses. Operational benefits also included the combination of higher selling prices and lower raw material costs, in addition to productivity benefits related to the fourth quarter 2015 restructuring. These operational benefits were partially offset by the impact of flat organic sales and lower asset utilization. Restructuring actions resulted in an after-tax charge of 14 cents per diluted share in 2015, which provided a year-on-year benefit in 2016.

Acquisition and divestiture impacts, which are measured for the first twelve months post-transaction, related to the acquisitions of Membrana and Capital Safety (third quarter 2015) and Semfinder (September 2016), and the divestitures of Polyfoam (first quarter 2016), the library systems business (fourth quarter 2015/first quarter 2016), and the license plate converting business in France (fourth quarter 2015). In addition, in the fourth quarter of 2016, 3M sold the assets of its protective films business and its cathode battery technology out-licensing business. On a combined basis, these acquisition/divestiture year-on-year impacts resulted in a 14 cents per diluted share benefit to earnings per share in 2016, driven by solid performances from 2015 acquisitions and year-on-year divestiture gains. Refer to Note 2 for further discussion of these acquisition/divestiture impacts.

Foreign currency impacts (net of hedging) decreased pre-tax earnings by approximately $127 million year-on-year in 2016, excluding the impact of foreign currency changes on tax rates. This is equivalent to a year-on-year decrease of 14 cents per diluted share for 2016.

Over the past few years, 3M has taken actions to better optimize its capital structure and reduce its cost of capital by adding debt. These actions have led to an increase in interest expense year-on-year in 2016, largely due to higher average debt balances.

The income tax rate was 28.3 percent in 2016, a decline of 0.8 percentage points versus last year. The 2016 change in tax rate was driven by a number of factors as referenced in Note 8, including the first quarter 2016 adoption of Accounting Standards Update (ASU) No. 2016-09 (discussed in Note 1).

Weighted-average diluted shares outstanding in 2016 declined 3 percent versus last year, which benefited earnings per share. The benefits from share repurchases, net of issuances, were partially offset by the adoption of ASU No. 2016-09, which increased the calculated number of diluted shares in 2016.

Year 2015 versus Year 2014 EPS:

For total year 2015, net income attributable to 3M was $4.833 billion, or $7.58 per diluted share, compared to $4.956 billion, or $7.49 per diluted share, in 2014, an increase of 1.2 percent on a per diluted share basis. Operational benefits include the combination of selling price increases and raw material cost decreases, partially offset by higher pension/postretirement benefit costs. Restructuring actions (discussed in Note 4) resulted in an after-tax charge of 14 cents per diluted share. Acquisition and divestiture impacts primarily relate to the Capital Safety and Membrana acquisitions, and the divestitures of the license plate converting business in France and substantially all of the library systems business. Foreign exchange impacts decreased earnings per diluted share by approximately 43 cents year-on-year, driven by average year-on-year changes in foreign exchange rates in the Euro of 17 percent, Yen of 12 percent, and Brazil Real of 30 percent. The income tax rate was largely unchanged year-on-year. Weighted-average diluted shares outstanding in 2015 declined 3.7 percent year-on-year to 637.2 million, which increased earnings per diluted share by approximately 28 cents. Refer to the section entitled “Results of Operations” for further discussion.

Fourth-quarter 2016 sales and operating income results:

Fourth-quarter 2016 net income attributable to 3M was $1.155 billion, or $1.88 per diluted share, compared to $1.038 billion, or $1.66 per diluted share, in the fourth quarter of 2015. Fourth-quarter 2016 sales totaled $7.3 billion, an increase of 0.4 percent from the fourth quarter of 2015. Organic-local currency sales increased 1.6 percent, with organic volume increases of 1.5 percent and higher selling prices contributing 0.1 percent. Divestitures reduced sales by 0.4 percent, which related to the fourth quarter 2015 sale of both the license plate converting business in France, along with substantially all of the library systems business. In addition, in the fourth quarter of 2016, 3M sold the assets of its 

protective films business and its cathode battery technology out-licensing business. Foreign currency translation reduced sales by 0.8 percent year-on-year.

From a business segment perspective, 3M achieved organic local-currency sales growth (which includes organic volume and selling price impacts) in Industrial, Safety and Graphics, and Health Care, with declines in Electronics and Energy, and Consumer.

On an organic local-currency sales basis:

· Sales increased 4.6 percent in Industrial, with sales growth led by automotive OEM, advanced materials, separation and purification, and automotive aftermarket. Sales declined in aerospace and commercial transportation.
· Sales increased 2.2 percent in Safety and Graphics, with sales increases in roofing granules, personal safety, and commercial solutions. Sales declined in traffic safety and security.
· Sales increased 1.3 percent in Health Care, with sales increases in food safety, critical and chronic care, drug delivery systems, and infection prevention. Sales declined slightly in oral care, as this business continued to be impacted by soft end-market conditions and channel inventory adjustments. Health information systems also declined due to a slower rate of software installations in a tougher market over the past year, along with a challenging comparison against last year’s fourth quarter.
· Sales decreased 0.6 percent in Electronics and Energy. Electronics-related sales were flat, with growth in electronics materials solutions more than offset by a decline in display materials and systems. This was an improvement over recent quarters as end-market conditions and channel inventories became more stable. Energy-related sales declined 2 percent as growth in telecommunications markets was offset by declines in electrical markets, and renewable energy. In December 2015, 3M exited its backsheet business in renewable energy, which reduced energy-related organic sales by 3.5 percent year-on-year.
· Sales decreased 0.7 percent in the Consumer business segment. Despite channel inventory adjustments, 3M posted organic growth in the home improvement, consumer health care, and home care businesses. The stationery and office supplies business, which was most impacted by channel inventory adjustments, declined year-on-year.

From a geographic area perspective, fourth-quarter 2016 organic local-currency sales increased in Latin America/Canada, Asia Pacific, and the United States. Organic local-currency sales declined in EMEA.

On an organic local-currency sales basis:
· Sales in Latin America/Canada increased 4.1 percent. 3M saw growth in four of its five business segments, led by Health Care. Sales in Mexico increased 10 percent, Canada was up 3 percent and Brazil increased 1 percent.
· Sales in Asia Pacific increased 2.4 percent, led by Health Care and Consumer. This growth was partially offset by a decline in Electronics and Energy. Within Asia Pacific, sales increased 6 percent in China/Hong Kong, and increased 3 percent in Japan. Excluding our electronics-related businesses, China/Hong Kong was up 11 percent and Japan grew 2 percent.
· Organic local-currency sales in the United States increased 1.2 percent, led by Industrial, Health Care, and Safety and Graphics.
· Organic local-currency sales in EMEA declined 2.4 percent. West Europe declined 1 percent, as growth in Safety and Graphics, and Industrial, was more than offset by declines in other business groups. Central East Europe and Middle East Africa declined 6 percent, impacted by ongoing challenges in Saudi Arabia and Turkey, which 3M expects to persist in the near term.

Operating income in the fourth quarter of 2016 was 22.7 percent of sales, compared to 20.5 percent of sales in the fourth quarter of 2015, an increase of 2.2 percentage points. The year-on-year comparison related to 2015 restructuring charges increased operating income margins by 1.6 percentage points. In addition, lower pension/postretirement benefit costs, raw material cost decreases, year-on-year divestiture gains, and productivity benefits improved operating income margins. These benefits were partially offset by strategic investments and legal costs, with these items discussed on an annual basis in the “Operating income margin” section.

Year 2016 sales and operating income results:

Sales totaled $30.1 billion, a decrease of 0.5 percent from 2015. Organic local-currency sales declined 0.1 percent, with organic volumes declines of 0.8 percent largely offset by selling price increases of 0.7 percent. Acquisitions added 1.2 percent to sales, while divestitures reduced sales by 0.4 percent. Foreign currency translation reduced sales by 1.2 percent year-on-year.

From a business segment perspective, organic local-currency sales increased 3.5 percent in Health Care, 2.2 percent in Safety and Graphics, 1.9 percent in Consumer, and were flat in Industrial, while sales declined 7.5 percent in Electronics and Energy. From a geographic area perspective, 2016 organic local-currency sales grew 3.7 percent in Latin America/Canada, 0.5 percent in the United States, 0.4 percent in EMEA, and declined 2.8 percent in Asia Pacific. Refer to the sections entitled “Performance by Business Segment” and “Performance by Geographic Area” for additional detail.

Operating income in 2016 was 24.0 percent of sales, compared to 22.9 percent of sales in 2015, an increase of 1.1 percentage points. Restructuring actions resulted in a pre-tax charge of $114 million in 2015, which provided a year-on-year benefit in 2016. These results also included a benefit from the combination of selling price increases and raw material cost decreases, plus lower pension/postretirement benefit costs. Refer to the section entitled “Results of Operations” for further discussion.

Year 2015 sales and operating income results:

Sales totaled $30.3 billion, a decrease of 4.9 percent from 2014. Organic local-currency sales grew 1.3 percent, with higher organic volumes contributing 0.2 percent and selling price increases contributing 1.1 percent. Acquisitions added 0.8 percent to sales, while divestitures reduced sales by 0.2 percent. Foreign currency translation reduced sales by 6.8 percent year-on-year.

From a business segment perspective, organic local-currency sales increased 3.7 percent in Health Care, 3.4 percent in Consumer, 2.4 percent in Safety and Graphics, and 0.4 percent in Industrial, while sales declined 1.5 percent in Electronics and Energy. From a geographic area perspective, 2015 organic local-currency sales grew 2.1 percent in the United States, 1.5 percent in Latin America/Canada, 0.9 percent in Asia Pacific, and 0.8 percent in EMEA. Refer to the sections entitled “Performance by Business Segment” and “Performance by Geographic Area” for additional detail.

Operating income in 2015 was 22.9 percent of sales, compared to 22.4 percent of sales in 2014, an increase of 0.5 percentage points. These results included a benefit from the combination of selling price increases and raw material cost decreases, partially offset by higher pension/postretirement benefit costs and 2015 restructuring charges. Refer to the section entitled “Results of Operations” for further discussion.

[Source: Form 10-K dated 2017-02-09]

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Stock chart of MMM Financial statements of MMM
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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