Intrinsic value of 3M - MMM

Previous Close

$211.53

  Intrinsic Value

$222.53

stock screener

  Rating & Target

hold

+5%

Previous close

$211.53

 
Intrinsic value

$222.53

 
Up/down potential

+5%

 
Rating

hold

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 0001), $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 124.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.40
  7.16
  6.94
  6.75
  6.57
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
Revenue, $m
  34,000
  36,434
  38,964
  41,594
  44,329
  47,173
  50,133
  53,216
  56,426
  59,772
  63,261
  66,900
  70,699
  74,665
  78,808
  83,138
  87,665
  92,399
  97,352
  102,535
  107,961
  113,643
  119,593
  125,827
  132,360
  139,206
  146,382
  153,905
  161,794
  170,066
Variable operating expenses, $m
  20,776
  22,168
  23,613
  25,116
  26,679
  28,305
  29,997
  31,759
  33,593
  35,506
  36,155
  38,235
  40,406
  42,672
  45,040
  47,515
  50,102
  52,808
  55,638
  58,600
  61,702
  64,949
  68,350
  71,912
  75,646
  79,558
  83,660
  87,959
  92,468
  97,196
Fixed operating expenses, $m
  4,585
  4,686
  4,789
  4,894
  5,002
  5,112
  5,224
  5,339
  5,457
  5,577
  5,699
  5,825
  5,953
  6,084
  6,218
  6,354
  6,494
  6,637
  6,783
  6,932
  7,085
  7,241
  7,400
  7,563
  7,729
  7,899
  8,073
  8,251
  8,432
  8,618
Total operating expenses, $m
  25,361
  26,854
  28,402
  30,010
  31,681
  33,417
  35,221
  37,098
  39,050
  41,083
  41,854
  44,060
  46,359
  48,756
  51,258
  53,869
  56,596
  59,445
  62,421
  65,532
  68,787
  72,190
  75,750
  79,475
  83,375
  87,457
  91,733
  96,210
  100,900
  105,814
Operating income, $m
  8,639
  9,581
  10,562
  11,583
  12,647
  13,756
  14,912
  16,118
  17,376
  18,690
  21,407
  22,841
  24,341
  25,909
  27,551
  29,269
  31,069
  32,954
  34,931
  37,002
  39,175
  41,453
  43,844
  46,352
  48,985
  51,748
  54,649
  57,695
  60,894
  64,253
EBITDA, $m
  11,152
  12,178
  13,246
  14,358
  15,516
  16,723
  17,981
  19,292
  20,661
  22,090
  23,582
  25,141
  26,771
  28,476
  30,260
  32,127
  34,083
  36,131
  38,278
  40,527
  42,886
  45,360
  47,955
  50,678
  53,535
  56,534
  59,682
  62,986
  66,456
  70,100
Interest expense (income), $m
  194
  753
  860
  970
  1,084
  1,203
  1,326
  1,455
  1,588
  1,727
  1,872
  2,023
  2,181
  2,345
  2,516
  2,695
  2,882
  3,077
  3,282
  3,495
  3,719
  3,953
  4,197
  4,454
  4,722
  5,004
  5,298
  5,607
  5,931
  6,270
  6,626
Earnings before tax, $m
  7,885
  8,721
  9,592
  10,499
  11,444
  12,430
  13,458
  14,530
  15,649
  16,818
  19,384
  20,660
  21,996
  23,393
  24,855
  26,387
  27,991
  29,673
  31,435
  33,284
  35,222
  37,256
  39,390
  41,630
  43,981
  46,450
  49,042
  51,764
  54,623
  57,627
Tax expense, $m
  2,129
  2,355
  2,590
  2,835
  3,090
  3,356
  3,634
  3,923
  4,225
  4,541
  5,234
  5,578
  5,939
  6,316
  6,711
  7,124
  7,558
  8,012
  8,488
  8,987
  9,510
  10,059
  10,635
  11,240
  11,875
  12,541
  13,241
  13,976
  14,748
  15,559
Net income, $m
  5,756
  6,366
  7,002
  7,664
  8,354
  9,074
  9,824
  10,607
  11,424
  12,277
  14,150
  15,082
  16,057
  17,077
  18,144
  19,262
  20,434
  21,661
  22,948
  24,297
  25,712
  27,197
  28,755
  30,390
  32,106
  33,908
  35,801
  37,788
  39,875
  42,067

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  40,816
  43,738
  46,775
  49,933
  53,216
  56,630
  60,184
  63,884
  67,739
  71,755
  75,944
  80,313
  84,873
  89,634
  94,608
  99,806
  105,240
  110,923
  116,869
  123,091
  129,605
  136,426
  143,569
  151,053
  158,895
  167,114
  175,728
  184,760
  194,230
  204,161
Adjusted assets (=assets-cash), $m
  40,816
  43,738
  46,775
  49,933
  53,216
  56,630
  60,184
  63,884
  67,739
  71,755
  75,944
  80,313
  84,873
  89,634
  94,608
  99,806
  105,240
  110,923
  116,869
  123,091
  129,605
  136,426
  143,569
  151,053
  158,895
  167,114
  175,728
  184,760
  194,230
  204,161
Revenue / Adjusted assets
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
  0.833
Average production assets, $m
  16,014
  17,160
  18,352
  19,591
  20,879
  22,219
  23,613
  25,065
  26,577
  28,153
  29,796
  31,510
  33,299
  35,167
  37,119
  39,158
  41,290
  43,520
  45,853
  48,294
  50,850
  53,526
  56,328
  59,265
  62,341
  65,566
  68,946
  72,489
  76,205
  80,101
Working capital, $m
  4,624
  4,955
  5,299
  5,657
  6,029
  6,416
  6,818
  7,237
  7,674
  8,129
  8,603
  9,098
  9,615
  10,154
  10,718
  11,307
  11,922
  12,566
  13,240
  13,945
  14,683
  15,455
  16,265
  17,113
  18,001
  18,932
  19,908
  20,931
  22,004
  23,129
Total debt, $m
  15,933
  17,967
  20,081
  22,278
  24,563
  26,940
  29,413
  31,989
  34,671
  37,467
  40,382
  43,423
  46,596
  49,910
  53,372
  56,990
  60,772
  64,728
  68,866
  73,197
  77,730
  82,477
  87,449
  92,658
  98,116
  103,836
  109,832
  116,118
  122,709
  129,621
Total liabilities, $m
  28,408
  30,442
  32,556
  34,753
  37,038
  39,415
  41,888
  44,464
  47,146
  49,942
  52,857
  55,898
  59,071
  62,385
  65,847
  69,465
  73,247
  77,203
  81,341
  85,672
  90,205
  94,952
  99,924
  105,133
  110,591
  116,311
  122,307
  128,593
  135,184
  142,096
Total equity, $m
  12,408
  13,296
  14,220
  15,180
  16,178
  17,216
  18,296
  19,421
  20,593
  21,814
  23,087
  24,415
  25,801
  27,249
  28,761
  30,341
  31,993
  33,721
  35,528
  37,420
  39,400
  41,473
  43,645
  45,920
  48,304
  50,803
  53,421
  56,167
  59,046
  62,065
Total liabilities and equity, $m
  40,816
  43,738
  46,776
  49,933
  53,216
  56,631
  60,184
  63,885
  67,739
  71,756
  75,944
  80,313
  84,872
  89,634
  94,608
  99,806
  105,240
  110,924
  116,869
  123,092
  129,605
  136,425
  143,569
  151,053
  158,895
  167,114
  175,728
  184,760
  194,230
  204,161
Debt-to-equity ratio
  1.280
  1.350
  1.410
  1.470
  1.520
  1.560
  1.610
  1.650
  1.680
  1.720
  1.750
  1.780
  1.810
  1.830
  1.860
  1.880
  1.900
  1.920
  1.940
  1.960
  1.970
  1.990
  2.000
  2.020
  2.030
  2.040
  2.060
  2.070
  2.080
  2.090
Adjusted equity ratio
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304
  0.304

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,756
  6,366
  7,002
  7,664
  8,354
  9,074
  9,824
  10,607
  11,424
  12,277
  14,150
  15,082
  16,057
  17,077
  18,144
  19,262
  20,434
  21,661
  22,948
  24,297
  25,712
  27,197
  28,755
  30,390
  32,106
  33,908
  35,801
  37,788
  39,875
  42,067
Depreciation, amort., depletion, $m
  2,514
  2,597
  2,684
  2,775
  2,869
  2,967
  3,068
  3,174
  3,285
  3,400
  2,175
  2,300
  2,431
  2,567
  2,709
  2,858
  3,014
  3,177
  3,347
  3,525
  3,712
  3,907
  4,112
  4,326
  4,550
  4,786
  5,033
  5,291
  5,562
  5,847
Funds from operations, $m
  8,270
  8,963
  9,686
  10,439
  11,223
  12,041
  12,893
  13,781
  14,708
  15,677
  16,325
  17,382
  18,487
  19,644
  20,854
  22,121
  23,448
  24,838
  26,295
  27,822
  29,424
  31,104
  32,866
  34,716
  36,657
  38,694
  40,833
  43,079
  45,438
  47,914
Change in working capital, $m
  319
  331
  344
  358
  372
  387
  403
  419
  437
  455
  474
  495
  517
  539
  563
  589
  616
  644
  674
  705
  738
  773
  809
  848
  888
  931
  976
  1,023
  1,073
  1,125
Cash from operations, $m
  7,952
  8,632
  9,342
  10,082
  10,851
  11,654
  12,490
  13,362
  14,272
  15,222
  15,851
  16,887
  17,971
  19,104
  20,290
  21,532
  22,832
  24,194
  25,621
  27,117
  28,686
  30,331
  32,057
  33,868
  35,768
  37,763
  39,857
  42,056
  44,365
  46,789
Maintenance CAPEX, $m
  -1,089
  -1,169
  -1,253
  -1,340
  -1,430
  -1,524
  -1,622
  -1,724
  -1,830
  -1,940
  -2,055
  -2,175
  -2,300
  -2,431
  -2,567
  -2,709
  -2,858
  -3,014
  -3,177
  -3,347
  -3,525
  -3,712
  -3,907
  -4,112
  -4,326
  -4,550
  -4,786
  -5,033
  -5,291
  -5,562
New CAPEX, $m
  -1,089
  -1,147
  -1,192
  -1,239
  -1,288
  -1,340
  -1,394
  -1,452
  -1,512
  -1,576
  -1,643
  -1,714
  -1,789
  -1,868
  -1,951
  -2,039
  -2,132
  -2,230
  -2,333
  -2,441
  -2,556
  -2,676
  -2,803
  -2,936
  -3,077
  -3,224
  -3,380
  -3,544
  -3,716
  -3,896
Cash from investing activities, $m
  -2,178
  -2,316
  -2,445
  -2,579
  -2,718
  -2,864
  -3,016
  -3,176
  -3,342
  -3,516
  -3,698
  -3,889
  -4,089
  -4,299
  -4,518
  -4,748
  -4,990
  -5,244
  -5,510
  -5,788
  -6,081
  -6,388
  -6,710
  -7,048
  -7,403
  -7,774
  -8,166
  -8,577
  -9,007
  -9,458
Free cash flow, $m
  5,773
  6,317
  6,898
  7,503
  8,133
  8,790
  9,474
  10,187
  10,930
  11,706
  12,152
  12,998
  13,882
  14,806
  15,772
  16,783
  17,842
  18,950
  20,112
  21,329
  22,605
  23,943
  25,347
  26,820
  28,366
  29,988
  31,691
  33,480
  35,358
  37,330
Issuance/(repayment) of debt, $m
  1,984
  2,034
  2,114
  2,197
  2,285
  2,377
  2,473
  2,575
  2,683
  2,796
  2,915
  3,041
  3,174
  3,314
  3,462
  3,618
  3,782
  3,956
  4,138
  4,331
  4,534
  4,747
  4,972
  5,209
  5,458
  5,720
  5,996
  6,286
  6,591
  6,912
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  1,984
  2,034
  2,114
  2,197
  2,285
  2,377
  2,473
  2,575
  2,683
  2,796
  2,915
  3,041
  3,174
  3,314
  3,462
  3,618
  3,782
  3,956
  4,138
  4,331
  4,534
  4,747
  4,972
  5,209
  5,458
  5,720
  5,996
  6,286
  6,591
  6,912
Total cash flow (excl. dividends), $m
  7,757
  8,351
  9,012
  9,701
  10,418
  11,167
  11,947
  12,762
  13,613
  14,502
  15,067
  16,039
  17,056
  18,120
  19,234
  20,401
  21,624
  22,906
  24,250
  25,660
  27,139
  28,691
  30,319
  32,029
  33,824
  35,708
  37,687
  39,766
  41,949
  44,242
Retained Cash Flow (-), $m
  -845
  -888
  -923
  -960
  -998
  -1,038
  -1,080
  -1,125
  -1,172
  -1,221
  -1,273
  -1,328
  -1,386
  -1,447
  -1,512
  -1,580
  -1,652
  -1,728
  -1,808
  -1,892
  -1,980
  -2,073
  -2,172
  -2,275
  -2,384
  -2,498
  -2,619
  -2,746
  -2,879
  -3,019
Prev. year cash balance distribution, $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 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
  6,912
  7,463
  8,089
  8,741
  9,420
  10,129
  10,867
  11,637
  12,441
  13,280
  13,794
  14,711
  15,669
  16,672
  17,722
  18,821
  19,972
  21,178
  22,442
  23,768
  25,159
  26,617
  28,148
  29,754
  31,440
  33,210
  35,069
  37,020
  39,070
  41,223
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
  6,621
  6,818
  7,017
  7,166
  7,260
  7,298
  7,277
  7,197
  7,058
  6,862
  6,442
  6,159
  5,830
  5,462
  5,062
  4,639
  4,201
  3,757
  3,315
  2,886
  2,475
  2,091
  1,738
  1,420
  1,140
  897
  693
  523
  387
  280
Current shareholders' claim on cash, %
  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 is a technology company. It operates through five segments. The Industrial segment serves a range of markets, such as automotive original equipment manufacturer and automotive aftermarket, , appliance, paper and printing, packaging, food and beverage, and construction. The Safety and Graphics segment serves a range of markets for the safety, security and productivity of people, facilities and systems. The Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, health information systems, and food manufacturing and testing. The Consumer segment serves markets that include consumer retail, office business to business, home improvement, drug and pharmacy retail, and other markets.

FINANCIAL RATIOS  of  3M (MMM)

Valuation Ratios
P/E Ratio 25
Price to Sales 4.2
Price to Book 12.3
Price to Tangible Book
Price to Cash Flow 18.9
Price to Free Cash Flow 24.1
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 $31657 million for the last fiscal year's total revenue generated by 3M. The default revenue input number comes from 0001 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 7.4% 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 61.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4486 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 5.4% 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 47.1%.

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 13.6%. 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 - $11563 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 586.613 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 $124.1 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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