Intrinsic value of 3M - MMM

Previous Close

$201.11

  Intrinsic Value

$175.63

stock screener

  Rating & Target

hold

-13%

Previous close

$201.11

 
Intrinsic value

$175.63

 
Up/down potential

-13%

 
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 2017), $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 120.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  33,272
  34,965
  36,742
  38,605
  40,561
  42,613
  44,766
  47,026
  49,398
  51,887
  54,499
  57,241
  60,119
  63,141
  66,312
  69,641
  73,136
  76,805
  80,657
  84,701
  88,946
  93,403
  98,083
  102,995
  108,153
  113,569
  119,255
  125,224
  131,492
  138,073
Variable operating expenses, $m
  20,360
  21,328
  22,343
  23,409
  24,526
  25,699
  26,930
  28,221
  29,576
  30,999
  31,147
  32,714
  34,359
  36,086
  37,898
  39,801
  41,799
  43,896
  46,097
  48,408
  50,834
  53,382
  56,056
  58,864
  61,811
  64,906
  68,156
  71,568
  75,150
  78,911
Fixed operating expenses, $m
  4,579
  4,679
  4,782
  4,887
  4,995
  5,105
  5,217
  5,332
  5,449
  5,569
  5,692
  5,817
  5,945
  6,076
  6,209
  6,346
  6,485
  6,628
  6,774
  6,923
  7,075
  7,231
  7,390
  7,553
  7,719
  7,889
  8,062
  8,240
  8,421
  8,606
Total operating expenses, $m
  24,939
  26,007
  27,125
  28,296
  29,521
  30,804
  32,147
  33,553
  35,025
  36,568
  36,839
  38,531
  40,304
  42,162
  44,107
  46,147
  48,284
  50,524
  52,871
  55,331
  57,909
  60,613
  63,446
  66,417
  69,530
  72,795
  76,218
  79,808
  83,571
  87,517
Operating income, $m
  8,333
  8,958
  9,616
  10,309
  11,040
  11,809
  12,620
  13,473
  14,372
  15,319
  17,660
  18,710
  19,815
  20,979
  22,204
  23,494
  24,852
  26,282
  27,786
  29,370
  31,037
  32,791
  34,637
  36,579
  38,623
  40,774
  43,036
  45,417
  47,921
  50,556
EBITDA, $m
  11,900
  12,638
  13,415
  14,233
  15,094
  16,001
  16,955
  17,959
  19,017
  20,129
  21,301
  22,534
  23,831
  25,197
  26,634
  28,146
  29,738
  31,412
  33,174
  35,028
  36,978
  39,030
  41,189
  43,459
  45,848
  48,360
  51,003
  53,782
  56,705
  59,779
Interest expense (income), $m
  194
  753
  828
  904
  984
  1,068
  1,156
  1,249
  1,346
  1,448
  1,555
  1,667
  1,785
  1,909
  2,039
  2,175
  2,318
  2,468
  2,626
  2,792
  2,966
  3,148
  3,340
  3,541
  3,752
  3,973
  4,206
  4,450
  4,707
  4,976
  5,259
Earnings before tax, $m
  7,580
  8,130
  8,712
  9,325
  9,972
  10,653
  11,371
  12,127
  12,924
  13,763
  15,993
  16,925
  17,906
  18,940
  20,029
  21,176
  22,384
  23,655
  24,995
  26,404
  27,889
  29,451
  31,096
  32,827
  34,650
  36,568
  38,586
  40,710
  42,945
  45,297
Tax expense, $m
  2,046
  2,195
  2,352
  2,518
  2,692
  2,876
  3,070
  3,274
  3,489
  3,716
  4,318
  4,570
  4,835
  5,114
  5,408
  5,718
  6,044
  6,387
  6,749
  7,129
  7,530
  7,952
  8,396
  8,863
  9,355
  9,873
  10,418
  10,992
  11,595
  12,230
Net income, $m
  5,533
  5,935
  6,360
  6,808
  7,279
  7,777
  8,301
  8,853
  9,434
  10,047
  11,675
  12,355
  13,072
  13,826
  14,621
  15,458
  16,340
  17,268
  18,246
  19,275
  20,359
  21,499
  22,700
  23,964
  25,294
  26,694
  28,168
  29,718
  31,350
  33,067

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
  39,942
  41,975
  44,108
  46,345
  48,693
  51,156
  53,741
  56,454
  59,301
  62,289
  65,425
  68,717
  72,172
  75,799
  79,606
  83,603
  87,799
  92,203
  96,827
  101,682
  106,778
  112,129
  117,746
  123,644
  129,836
  136,337
  143,163
  150,329
  157,854
  165,754
Adjusted assets (=assets-cash), $m
  39,942
  41,975
  44,108
  46,345
  48,693
  51,156
  53,741
  56,454
  59,301
  62,289
  65,425
  68,717
  72,172
  75,799
  79,606
  83,603
  87,799
  92,203
  96,827
  101,682
  106,778
  112,129
  117,746
  123,644
  129,836
  136,337
  143,163
  150,329
  157,854
  165,754
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
  22,225
  23,357
  24,543
  25,788
  27,095
  28,466
  29,904
  31,413
  32,998
  34,660
  36,405
  38,237
  40,160
  42,178
  44,296
  46,520
  48,855
  51,306
  53,879
  56,580
  59,416
  62,393
  65,519
  68,801
  72,247
  75,864
  79,662
  83,650
  87,837
  92,233
Working capital, $m
  2,196
  2,308
  2,425
  2,548
  2,677
  2,812
  2,955
  3,104
  3,260
  3,425
  3,597
  3,778
  3,968
  4,167
  4,377
  4,596
  4,827
  5,069
  5,323
  5,590
  5,870
  6,165
  6,473
  6,798
  7,138
  7,496
  7,871
  8,265
  8,678
  9,113
Total debt, $m
  15,324
  16,739
  18,224
  19,781
  21,415
  23,130
  24,929
  26,817
  28,798
  30,878
  33,061
  35,352
  37,757
  40,281
  42,931
  45,713
  48,633
  51,698
  54,917
  58,295
  61,843
  65,567
  69,476
  73,581
  77,891
  82,416
  87,166
  92,154
  97,391
  102,890
Total liabilities, $m
  27,799
  29,214
  30,699
  32,256
  33,890
  35,605
  37,404
  39,292
  41,273
  43,353
  45,536
  47,827
  50,232
  52,756
  55,406
  58,188
  61,108
  64,173
  67,392
  70,770
  74,318
  78,042
  81,951
  86,056
  90,366
  94,891
  99,641
  104,629
  109,866
  115,365
Total equity, $m
  12,142
  12,760
  13,409
  14,089
  14,803
  15,551
  16,337
  17,162
  18,027
  18,936
  19,889
  20,890
  21,940
  23,043
  24,200
  25,415
  26,691
  28,030
  29,435
  30,911
  32,461
  34,087
  35,795
  37,588
  39,470
  41,447
  43,522
  45,700
  47,988
  50,389
Total liabilities and equity, $m
  39,941
  41,974
  44,108
  46,345
  48,693
  51,156
  53,741
  56,454
  59,300
  62,289
  65,425
  68,717
  72,172
  75,799
  79,606
  83,603
  87,799
  92,203
  96,827
  101,681
  106,779
  112,129
  117,746
  123,644
  129,836
  136,338
  143,163
  150,329
  157,854
  165,754
Debt-to-equity ratio
  1.260
  1.310
  1.360
  1.400
  1.450
  1.490
  1.530
  1.560
  1.600
  1.630
  1.660
  1.690
  1.720
  1.750
  1.770
  1.800
  1.820
  1.840
  1.870
  1.890
  1.910
  1.920
  1.940
  1.960
  1.970
  1.990
  2.000
  2.020
  2.030
  2.040
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
  5,533
  5,935
  6,360
  6,808
  7,279
  7,777
  8,301
  8,853
  9,434
  10,047
  11,675
  12,355
  13,072
  13,826
  14,621
  15,458
  16,340
  17,268
  18,246
  19,275
  20,359
  21,499
  22,700
  23,964
  25,294
  26,694
  28,168
  29,718
  31,350
  33,067
Depreciation, amort., depletion, $m
  3,567
  3,681
  3,799
  3,924
  4,054
  4,191
  4,335
  4,486
  4,645
  4,811
  3,641
  3,824
  4,016
  4,218
  4,430
  4,652
  4,886
  5,131
  5,388
  5,658
  5,942
  6,239
  6,552
  6,880
  7,225
  7,586
  7,966
  8,365
  8,784
  9,223
Funds from operations, $m
  9,101
  9,616
  10,159
  10,731
  11,334
  11,968
  12,636
  13,339
  14,079
  14,858
  15,315
  16,179
  17,088
  18,044
  19,051
  20,111
  21,226
  22,399
  23,634
  24,933
  26,300
  27,739
  29,252
  30,844
  32,519
  34,281
  36,134
  38,083
  40,134
  42,290
Change in working capital, $m
  107
  112
  117
  123
  129
  135
  142
  149
  157
  164
  172
  181
  190
  199
  209
  220
  231
  242
  254
  267
  280
  294
  309
  324
  340
  357
  375
  394
  414
  434
Cash from operations, $m
  8,994
  9,504
  10,042
  10,608
  11,205
  11,833
  12,494
  13,190
  13,923
  14,694
  15,143
  15,998
  16,898
  17,845
  18,842
  19,891
  20,995
  22,157
  23,380
  24,666
  26,020
  27,445
  28,943
  30,520
  32,179
  33,923
  35,759
  37,689
  39,720
  41,856
Maintenance CAPEX, $m
  -2,116
  -2,223
  -2,336
  -2,454
  -2,579
  -2,709
  -2,847
  -2,990
  -3,141
  -3,300
  -3,466
  -3,641
  -3,824
  -4,016
  -4,218
  -4,430
  -4,652
  -4,886
  -5,131
  -5,388
  -5,658
  -5,942
  -6,239
  -6,552
  -6,880
  -7,225
  -7,586
  -7,966
  -8,365
  -8,784
New CAPEX, $m
  -1,067
  -1,131
  -1,187
  -1,245
  -1,306
  -1,371
  -1,438
  -1,509
  -1,584
  -1,663
  -1,745
  -1,832
  -1,923
  -2,018
  -2,119
  -2,224
  -2,335
  -2,451
  -2,573
  -2,701
  -2,836
  -2,977
  -3,126
  -3,282
  -3,446
  -3,618
  -3,798
  -3,988
  -4,187
  -4,396
Cash from investing activities, $m
  -3,183
  -3,354
  -3,523
  -3,699
  -3,885
  -4,080
  -4,285
  -4,499
  -4,725
  -4,963
  -5,211
  -5,473
  -5,747
  -6,034
  -6,337
  -6,654
  -6,987
  -7,337
  -7,704
  -8,089
  -8,494
  -8,919
  -9,365
  -9,834
  -10,326
  -10,843
  -11,384
  -11,954
  -12,552
  -13,180
Free cash flow, $m
  5,811
  6,150
  6,519
  6,909
  7,319
  7,752
  8,209
  8,690
  9,197
  9,732
  9,932
  10,526
  11,151
  11,811
  12,505
  13,237
  14,008
  14,821
  15,676
  16,577
  17,526
  18,526
  19,578
  20,686
  21,853
  23,081
  24,374
  25,735
  27,168
  28,676
Issuance/(repayment) of debt, $m
  1,375
  1,415
  1,484
  1,557
  1,634
  1,715
  1,799
  1,888
  1,982
  2,080
  2,183
  2,291
  2,405
  2,524
  2,650
  2,782
  2,920
  3,066
  3,218
  3,379
  3,547
  3,724
  3,910
  4,105
  4,310
  4,525
  4,751
  4,988
  5,237
  5,498
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  
  1,375
  1,415
  1,484
  1,557
  1,634
  1,715
  1,799
  1,888
  1,982
  2,080
  2,183
  2,291
  2,405
  2,524
  2,650
  2,782
  2,920
  3,066
  3,218
  3,379
  3,547
  3,724
  3,910
  4,105
  4,310
  4,525
  4,751
  4,988
  5,237
  5,498
Total cash flow (excl. dividends), $m
  7,187
  7,565
  8,004
  8,466
  8,953
  9,467
  10,008
  10,578
  11,179
  11,811
  12,115
  12,817
  13,556
  14,335
  15,155
  16,019
  16,928
  17,886
  18,894
  19,956
  21,073
  22,250
  23,488
  24,791
  26,163
  27,606
  29,125
  30,723
  32,405
  34,174
Retained Cash Flow (-), $m
  -579
  -618
  -648
  -680
  -714
  -749
  -786
  -825
  -865
  -908
  -953
  -1,001
  -1,050
  -1,103
  -1,157
  -1,215
  -1,275
  -1,339
  -1,406
  -1,476
  -1,549
  -1,627
  -1,708
  -1,793
  -1,882
  -1,976
  -2,075
  -2,179
  -2,287
  -2,402
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
  317
  333
  350
  367
  386
  406
  426
  448
  470
  494
  519
  545
  572
  601
  631
  663
  696
  731
  768
  807
  847
  889
  934
  981
  1,030
  1,082
  1,136
  1,193
  1,252
  1,315
Cash available for distribution, $m
  6,607
  6,947
  7,355
  7,786
  8,240
  8,718
  9,222
  9,753
  10,313
  10,903
  11,161
  11,816
  12,506
  13,232
  13,998
  14,804
  15,653
  16,547
  17,489
  18,480
  19,524
  20,623
  21,780
  22,998
  24,280
  25,630
  27,050
  28,545
  30,118
  31,773
Discount rate, %
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
  6,317
  6,322
  6,341
  6,327
  6,277
  6,191
  6,067
  5,905
  5,707
  5,472
  5,041
  4,762
  4,456
  4,129
  3,786
  3,434
  3,077
  2,724
  2,379
  2,049
  1,739
  1,453
  1,194
  964
  764
  594
  453
  337
  246
  175
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 23.8
Price to Sales 4
Price to Book 11.7
Price to Tangible Book
Price to Cash Flow 18
Price to Free Cash Flow 22.9
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 2017 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 5.1% 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 4.6%, 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 $4480 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 1%.

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 66.8%.

Life of production assets of 10 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 6.6%. 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 598 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 $120.3 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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