3M Company (MMM) is a diversified technology company with a presence in the industrial and transportation; health care; consumer and office; safety, security and protection services; display and graphics, and electro and communications businesses.
How does the company make money?
Its products are sold through a number of distribution channels, including directly to users and through wholesalers, retailers, jobbers, distributors and dealers in a range of trades in a number of countries worldwide.
3M Company manages its operations in six business segments. These are Industrial and Transportation which serve a range of markets, such as an automotive original equipment manufacturer (OEM) and automotive aftermarket (auto body shops and retail), renewable energy, electronics, paper and packaging, food and beverage and appliance.
Health Care. Consumer and office which serves the markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, and health information systems. Safety, Security and Protection Services, serve a range of markets for the safety, security and productivity of workers, facilities and systems. Display and Graphics segment which serves markets that include the electronic display, traffic safety and commercial graphics and Electro and Communications segment which serves the world’s telecommunications companies with a range of products for fiber-optic and copper-based telecommunications systems for rapid deployment in fixed and wireless networks.
Who is running the business?
Mr. Inge G. Thulin is Chairman of the Board, President and Chief Executive Officer of 3M Company. He serves as President, Chief Executive Officer, Director Officer of the Company since February 24, 2012.Also served as the Company’s Executive Vice President and Chief Operating Officer from May 2011 to February 2012, with responsibility for 3M’s six business segments and International Operations
Mr. Thulin was Executive Vice President of International Operations from 2004 to 2011. Under his leadership, international sales grew to nearly $20 billion and today represents two-thirds of 3M’s sales. Prior to that has he held numerous leadership positions in Asia Pacific, Europe and Middle East, and across multiple businesses. Mr. Thulin holds degrees in Marketing and Economics from Gothenburg University.
Mr. David Meline is company’s Chief Financial Officer and Senior vice President. He served as Vice President, Corporate Controller and Chief Accounting Officer, 2008-2011. He also served as Chief Financial Officer, North America, General Motors Corp., 2007-2008. Mr. David was awarded an M.S. in Economics from the London School of Economics, an M.B.A in Finance from the University of Chicago, and a B.S. in Mechanical Engineering from Iowa State University.
We have reviewed the related ratios which guide us to determine how healthy 3M Company is for the past five years from 2008 to 2012. Here are the results:
The company’s current ratio was still above the standard of 2, while its quick ratio was 1.31 average. The company has minimal debt as shown above at 36 percent, while the solvency ratio was quite very high at 100 percent.
3M Company is undoubtedly financially healthy as far as its current resources is concerned and has the capacity to pay its obligations as its solvency ratio is 100 percent. With regards to its debt, at an average of 36 percent, we can say that it belongs to a debt-free company.
Revenue shows an increase year over year except in 2009 versus 2008. The company registered a yearly growth of an average of 4.43 percent. The highest peak was in 2010 and 2011.
Its operating income has a yearly growth rate of -15.74, -7.74, 22.93, 4.39 and 4.94 percent from 2008 to 2012 . And net income yearly growth rate from 2008 to 2012 was -15.53, -7.72, 27.94, 4.85 and 3.76. Its TTM was 2.66 percent.
The company’s gross margin was increasing yearly from 2008 to 2010 however, it slightly down by 1 percent in 2011 and recovered by 1 percent in 2012. After deducting operating and other related expenses it resulted to a net margin of 15 percent ttm or an average of 14 percent.
The company’s net margin in the last 5 years is quite good considering this kind of industry.
MMM’s operating cash flow indicate positive results, though it’s up and down trend, it shows that the company was effective in generating cash flow out of its revenue. Therefore, the company has sufficient funds for its operating activities.
Cash Flow from Investing Activities generate cash outflows, such as capital expenditures for property, plant and equipment, business acquisitions and the purchase of investment securities while inflows come from the sale of assets, businesses and investment securities.
3M Company’s investing cash flow shows negative results because cash outflows exceeded cash inflows.
Cash Flow from Financing Activities refer to the company’s continuous borrowing and repayment of debt. Similar to investing cash flow, the company’s cash outflow exceeded its cash inflows, thus, incurred a negative balance.
Cash flow margin of 3M Co is quite good at 19 percent both ttm and average. In addition, it has a positive free cash flow of $4173 ttm or 72 percent. Its average is 74 percent, which indicates that the company has available funds to pay additional dividends and invest new line of business. Free cash flow is the result after deducting capital expenditure from operating cash flow .
In our valuation of equity, we adopt the investment style which we think applicable to the company. Seeks out undervalued companies whose stock price are temporarily down, but whose fundamentals are sound in the long run. This philosophy was to buy wisely when prices fall and to sell wisely when the price rise a great deal. Shown here is the metrics.
With the result of the formula “Sustainable growth rate=ROE x (1- dividend payout ratio)”, it shows that 3M Co average SGR is 17.13 percent, result of the calculations shows that the margin of safety was averaging 65 percent.
Relative Valuation Methods
For 3M Co, the current book value per share was $26.15, with an average of $21.36 per share, while the price to earnings ratio in the trailing twelve months (ttm) was 19.3% per share and 15.52% average per share. Moreover, the earning per share at ttm was $6.38 and averaging $5.62 while the return on equity at ttm was $26.1 and has an average of $28.26 per share.
The table below shows the summary of calculations of 3M Co.
The growth was 31.82 percent, while the dividend yield was 2.03 percent. The calculated value of appreciation was $76.05, this is the required 40 percent. Further, the computed value dividend was $49.80 and the computed total value was $125.85. The price that the investor is willing to pay was $293.18. Furthermore, the market price of 3M Co to date was $122.84 per share. If we compare this to the total value of $125.85 per share, it indicates that the stock is trading at undervalued prices.
To sum it all, the results show that 3M Co (MMM) is financially healthy as far as its current resources are concerned the company is considered debt- free and 100 percent solvent.
Income wise, the company is continuously generating income, expenses is properly controlled which resulted to commendable profit margin. When it comes to generating cash flow, the company has sufficient cash flow used for operating activities and high free cash flow. In addition, the company has 28 percent able to sustain its operation internally without additional debt and equity.
Researched and Written by Rio and Meriam