Intrinsic value of 3M - MMM

Previous Close

$236.00

  Intrinsic Value

$160.70

stock screener

  Rating & Target

sell

-32%

Previous close

$236.00

 
Intrinsic value

$160.70

 
Up/down potential

-32%

 
Rating

sell

*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.

Please visit our new site that uses elements of artificial intelligence for stock valuation: artificial intelligence value of 3M (MMM) stock.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
Revenue, $m
  30,109
  31,916
  33,799
  35,762
  37,811
  39,950
  42,183
  44,516
  46,955
  49,505
  52,172
  54,963
  57,883
  60,941
  64,143
  67,497
  71,010
  74,693
  78,552
  82,597
  86,839
  91,286
  95,950
  100,842
  105,974
  111,357
  117,005
  122,931
  129,149
  135,674
  142,521
Variable operating expenses, $m
 
  24,552
  25,946
  27,401
  28,918
  30,502
  32,156
  33,884
  35,690
  37,578
  39,553
  40,703
  42,866
  45,130
  47,501
  49,985
  52,587
  55,314
  58,172
  61,168
  64,309
  67,603
  71,057
  74,680
  78,480
  82,466
  86,649
  91,037
  95,642
  100,474
  105,545
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
  24,552
  25,946
  27,401
  28,918
  30,502
  32,156
  33,884
  35,690
  37,578
  39,553
  40,703
  42,866
  45,130
  47,501
  49,985
  52,587
  55,314
  58,172
  61,168
  64,309
  67,603
  71,057
  74,680
  78,480
  82,466
  86,649
  91,037
  95,642
  100,474
  105,545
Operating income, $m
  7,223
  7,364
  7,852
  8,362
  8,893
  9,448
  10,027
  10,633
  11,266
  11,927
  12,619
  14,260
  15,017
  15,811
  16,641
  17,512
  18,423
  19,378
  20,380
  21,429
  22,530
  23,684
  24,894
  26,163
  27,494
  28,891
  30,356
  31,894
  33,507
  35,200
  36,976
EBITDA, $m
  8,697
  9,131
  9,669
  10,231
  10,817
  11,429
  12,068
  12,735
  13,433
  14,163
  14,926
  15,724
  16,560
  17,434
  18,350
  19,310
  20,315
  21,368
  22,472
  23,630
  24,843
  26,116
  27,450
  28,850
  30,318
  31,858
  33,473
  35,169
  36,948
  38,814
  40,773
Interest expense (income), $m
  194
  375
  421
  468
  518
  569
  623
  679
  738
  799
  864
  931
  1,001
  1,074
  1,151
  1,232
  1,316
  1,405
  1,497
  1,594
  1,696
  1,803
  1,915
  2,032
  2,155
  2,284
  2,420
  2,562
  2,711
  2,868
  3,032
Earnings before tax, $m
  7,053
  6,988
  7,431
  7,893
  8,375
  8,879
  9,404
  9,953
  10,527
  11,128
  11,755
  13,329
  14,016
  14,736
  15,490
  16,280
  17,107
  17,974
  18,882
  19,835
  20,833
  21,881
  22,979
  24,131
  25,339
  26,606
  27,936
  29,332
  30,796
  32,332
  33,944
Tax expense, $m
  1,995
  1,887
  2,006
  2,131
  2,261
  2,397
  2,539
  2,687
  2,842
  3,004
  3,174
  3,599
  3,784
  3,979
  4,182
  4,395
  4,619
  4,853
  5,098
  5,355
  5,625
  5,908
  6,204
  6,515
  6,841
  7,184
  7,543
  7,920
  8,315
  8,730
  9,165
Net income, $m
  5,050
  5,101
  5,425
  5,762
  6,114
  6,481
  6,865
  7,266
  7,685
  8,123
  8,581
  9,730
  10,232
  10,757
  11,308
  11,884
  12,488
  13,121
  13,784
  14,479
  15,208
  15,973
  16,775
  17,615
  18,497
  19,423
  20,393
  21,412
  22,481
  23,602
  24,779

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
  32,044
  33,934
  35,906
  37,963
  40,110
  42,352
  44,695
  47,144
  49,704
  52,382
  55,183
  58,116
  61,186
  64,400
  67,768
  71,296
  74,993
  78,867
  82,929
  87,187
  91,653
  96,336
  101,247
  106,400
  111,804
  117,475
  123,425
  129,668
  136,219
  143,094
Adjusted assets (=assets-cash), $m
  30,228
  32,044
  33,934
  35,906
  37,963
  40,110
  42,352
  44,695
  47,144
  49,704
  52,382
  55,183
  58,116
  61,186
  64,400
  67,768
  71,296
  74,993
  78,867
  82,929
  87,187
  91,653
  96,336
  101,247
  106,400
  111,804
  117,475
  123,425
  129,668
  136,219
  143,094
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
  11,649
  12,336
  13,053
  13,801
  14,582
  15,397
  16,248
  17,139
  18,069
  19,043
  20,061
  21,127
  22,243
  23,412
  24,636
  25,919
  27,263
  28,671
  30,148
  31,696
  33,319
  35,022
  36,807
  38,680
  40,645
  42,707
  44,870
  47,139
  49,521
  52,020
Working capital, $m
  5,507
  4,021
  4,259
  4,506
  4,764
  5,034
  5,315
  5,609
  5,916
  6,238
  6,574
  6,925
  7,293
  7,679
  8,082
  8,505
  8,947
  9,411
  9,898
  10,407
  10,942
  11,502
  12,090
  12,706
  13,353
  14,031
  14,743
  15,489
  16,273
  17,095
  17,958
Total debt, $m
  11,695
  12,030
  13,384
  14,796
  16,268
  17,806
  19,411
  21,089
  22,842
  24,675
  26,592
  28,598
  30,698
  32,896
  35,198
  37,609
  40,135
  42,782
  45,556
  48,464
  51,513
  54,710
  58,063
  61,580
  65,269
  69,139
  73,199
  77,459
  81,929
  86,620
  91,542
Total liabilities, $m
  22,608
  22,943
  24,297
  25,709
  27,181
  28,719
  30,324
  32,002
  33,755
  35,588
  37,505
  39,511
  41,611
  43,809
  46,111
  48,522
  51,048
  53,695
  56,469
  59,377
  62,426
  65,623
  68,976
  72,493
  76,182
  80,052
  84,112
  88,372
  92,842
  97,533
  102,455
Total equity, $m
  10,298
  9,100
  9,637
  10,197
  10,781
  11,391
  12,028
  12,693
  13,389
  14,116
  14,876
  15,672
  16,505
  17,377
  18,290
  19,246
  20,248
  21,298
  22,398
  23,552
  24,761
  26,029
  27,359
  28,754
  30,217
  31,752
  33,363
  35,053
  36,826
  38,686
  40,639
Total liabilities and equity, $m
  32,906
  32,043
  33,934
  35,906
  37,962
  40,110
  42,352
  44,695
  47,144
  49,704
  52,381
  55,183
  58,116
  61,186
  64,401
  67,768
  71,296
  74,993
  78,867
  82,929
  87,187
  91,652
  96,335
  101,247
  106,399
  111,804
  117,475
  123,425
  129,668
  136,219
  143,094
Debt-to-equity ratio
  1.136
  1.320
  1.390
  1.450
  1.510
  1.560
  1.610
  1.660
  1.710
  1.750
  1.790
  1.820
  1.860
  1.890
  1.920
  1.950
  1.980
  2.010
  2.030
  2.060
  2.080
  2.100
  2.120
  2.140
  2.160
  2.180
  2.190
  2.210
  2.220
  2.240
  2.250
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
  5,101
  5,425
  5,762
  6,114
  6,481
  6,865
  7,266
  7,685
  8,123
  8,581
  9,730
  10,232
  10,757
  11,308
  11,884
  12,488
  13,121
  13,784
  14,479
  15,208
  15,973
  16,775
  17,615
  18,497
  19,423
  20,393
  21,412
  22,481
  23,602
  24,779
Depreciation, amort., depletion, $m
  1,474
  1,767
  1,817
  1,869
  1,924
  1,981
  2,040
  2,103
  2,168
  2,236
  2,307
  1,464
  1,542
  1,624
  1,709
  1,798
  1,892
  1,990
  2,093
  2,201
  2,314
  2,432
  2,556
  2,687
  2,823
  2,967
  3,117
  3,275
  3,441
  3,615
  3,797
Funds from operations, $m
  6,619
  6,868
  7,242
  7,631
  8,038
  8,462
  8,906
  9,369
  9,853
  10,359
  10,888
  11,194
  11,774
  12,381
  13,017
  13,682
  14,380
  15,111
  15,877
  16,680
  17,522
  18,405
  19,331
  20,302
  21,321
  22,389
  23,511
  24,687
  25,922
  27,217
  28,577
Change in working capital, $m
  -43
  228
  237
  247
  258
  269
  281
  294
  307
  321
  336
  352
  368
  385
  403
  423
  443
  464
  486
  510
  534
  560
  588
  616
  647
  678
  712
  747
  783
  822
  863
Cash from operations, $m
  6,662
  6,641
  7,005
  7,384
  7,780
  8,193
  8,624
  9,075
  9,545
  10,037
  10,552
  10,843
  11,406
  11,996
  12,613
  13,260
  13,937
  14,647
  15,391
  16,170
  16,988
  17,845
  18,743
  19,686
  20,674
  21,711
  22,799
  23,941
  25,138
  26,395
  27,714
Maintenance CAPEX, $m
  0
  -801
  -850
  -900
  -953
  -1,007
  -1,064
  -1,124
  -1,186
  -1,251
  -1,319
  -1,390
  -1,464
  -1,542
  -1,624
  -1,709
  -1,798
  -1,892
  -1,990
  -2,093
  -2,201
  -2,314
  -2,432
  -2,556
  -2,687
  -2,823
  -2,967
  -3,117
  -3,275
  -3,441
  -3,615
New CAPEX, $m
  -1,420
  -673
  -687
  -717
  -748
  -781
  -815
  -852
  -890
  -931
  -973
  -1,019
  -1,066
  -1,116
  -1,169
  -1,224
  -1,283
  -1,344
  -1,409
  -1,477
  -1,548
  -1,623
  -1,702
  -1,786
  -1,873
  -1,965
  -2,061
  -2,163
  -2,270
  -2,382
  -2,499
Cash from investing activities, $m
  -1,403
  -1,474
  -1,537
  -1,617
  -1,701
  -1,788
  -1,879
  -1,976
  -2,076
  -2,182
  -2,292
  -2,409
  -2,530
  -2,658
  -2,793
  -2,933
  -3,081
  -3,236
  -3,399
  -3,570
  -3,749
  -3,937
  -4,134
  -4,342
  -4,560
  -4,788
  -5,028
  -5,280
  -5,545
  -5,823
  -6,114
Free cash flow, $m
  5,259
  5,166
  5,467
  5,767
  6,079
  6,405
  6,745
  7,099
  7,469
  7,856
  8,260
  8,434
  8,876
  9,338
  9,821
  10,327
  10,856
  11,411
  11,992
  12,601
  13,239
  13,908
  14,609
  15,344
  16,115
  16,923
  17,771
  18,660
  19,593
  20,572
  21,600
Issuance/(repayment) of debt, $m
  1,043
  1,307
  1,354
  1,412
  1,473
  1,537
  1,606
  1,677
  1,753
  1,833
  1,917
  2,006
  2,100
  2,198
  2,302
  2,411
  2,526
  2,647
  2,774
  2,908
  3,049
  3,197
  3,353
  3,517
  3,689
  3,870
  4,060
  4,260
  4,470
  4,691
  4,923
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
  1,307
  1,354
  1,412
  1,473
  1,537
  1,606
  1,677
  1,753
  1,833
  1,917
  2,006
  2,100
  2,198
  2,302
  2,411
  2,526
  2,647
  2,774
  2,908
  3,049
  3,197
  3,353
  3,517
  3,689
  3,870
  4,060
  4,260
  4,470
  4,691
  4,923
Total cash flow (excl. dividends), $m
  3,278
  6,474
  6,821
  7,178
  7,552
  7,942
  8,350
  8,777
  9,222
  9,689
  10,177
  10,440
  10,975
  11,536
  12,123
  12,738
  13,382
  14,058
  14,766
  15,509
  16,288
  17,105
  17,962
  18,860
  19,803
  20,793
  21,831
  22,920
  24,063
  25,263
  26,522
Retained Cash Flow (-), $m
  1,131
  -508
  -537
  -560
  -584
  -610
  -637
  -665
  -695
  -727
  -760
  -796
  -833
  -872
  -913
  -956
  -1,002
  -1,050
  -1,100
  -1,154
  -1,209
  -1,268
  -1,330
  -1,395
  -1,463
  -1,535
  -1,610
  -1,690
  -1,773
  -1,861
  -1,953
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
 
  7,671
  6,284
  6,619
  6,968
  7,333
  7,713
  8,111
  8,527
  8,962
  9,416
  9,645
  10,143
  10,664
  11,210
  11,781
  12,380
  13,008
  13,666
  14,356
  15,079
  15,837
  16,632
  17,466
  18,340
  19,258
  20,220
  21,231
  22,290
  23,403
  24,570
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
 
  7,348
  5,741
  5,742
  5,712
  5,651
  5,557
  5,431
  5,273
  5,084
  4,865
  4,504
  4,246
  3,968
  3,673
  3,366
  3,052
  2,736
  2,424
  2,121
  1,831
  1,558
  1,307
  1,078
  875
  698
  546
  419
  315
  232
  167
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 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 27.9
Price to Sales 4.7
Price to Book 13.7
Price to Tangible Book
Price to Cash Flow 21.1
Price to Free Cash Flow 26.9
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 $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 6% 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 596.508 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 $140.8 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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Financial statements of MMM
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