3M Company (NYSE: MMM)
Quality Value Investing Research Report | Updated Coverage | April 2024
Summary:
3M Company is a legacy large-cap industrial conglomerate and perennial patent leader.
Despite flat revenue growth and product liability lawsuit settlements, senior management delivers sector-beating profit margins and returns on equity and invested capital.
Shareholder yields on the stock are underperforming Treasuries, while valuation multiples suggest a value-priced stock.
QVI changes its coverage rating of 3M Company in the Concentrated Real-Time Picks as a result of this updated research report.
When referencing this research report, access your Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on April 2, 2024, and intended for illustration only.
The 46 holdings in the QVI Real-Time Stock Picks have collectively achieved alpha for 15 years by focusing research and analysis on a company’s current wealth and its share price’s present value. In other words, just the facts without unreliable predictive analysis typical of the buy side or the business modeling overkill of the sell side Wall Street analysts.
In this updated coverage QVI Research Report, we’ll reexamine the Concentrated Real-Time Stock Picks industrials sector holding, 3M Company, to see if it continues to meet Quality Value Investing’s investment criteria based on our checklist analysis of the business’s current wealth and its stock’s present value.
3M: Company Current Wealth
To uncover the company’s current wealth, QVI defines the value proposition, measures returns on management, and assesses enterprise downside risks.
Value Proposition
QVI Research Report’s value proposition section provides a brief synopsis of the company’s business model, major-exchange listing, stock symbol, market capitalization, and dividend-paying status. In addition, it defines the competitive advantages of a company’s products or services to its customers compared to the industry, including its economic moat.
3M Company MMM 0.00%↑ is a dividend-paying large-cap stock in the industrials sector’s industrial conglomerates industry. MMM was added to the QVI Real-Time Stock Picks on July 21, 2010, at a cost basis of $41.11 a share, adjusted for splits, dividends, and its recent spin-off of health care unit Solventum Corporation (SOLV). 3M retained 19.9% of SOLV shares. MMM shareholders received one SOLV share for every four MMM common shares.
3M Company provides diversified technology services in the United States and internationally. The company operates through three segments: Safety and Industrial, Transportation and Electronics, and Consumer.
The Safety and Industrial segment offers industrial abrasives and finishing for metalworking applications; autobody repair solutions; closure systems for personal hygiene products, masking, and packaging materials; electrical products and materials for construction and maintenance, power distribution, and electrical original equipment manufacturers; structural adhesives and tapes; respiratory, hearing, eye, and fall protection solutions; and natural and color-coated mineral granules for shingles.
The Transportation and Electronics segment provides ceramic solutions; attachment/bonding products, films, sound, and temperature management for transportation vehicles; premium large format graphic films for advertising and fleet signage; light management films and electronics assembly solutions; packaging and interconnection solutions; semiconductor production materials; data centers solutions; and reflective signage for highway, and vehicle safety.
The Consumer segment provides consumer bandages, braces, supports, and respirators; home cleaning products; retail abrasives and paint accessories; car care DIY products; picture hanging and consumer air quality solutions; and stationery products. It offers its products through e-commerce and traditional wholesalers, retailers, jobbers, distributors, and dealers.
On April 1, 2024, 3M spun-ff its Healthcare segment as a separate publicly traded company, Solventum Corporation, which offers healthcare procedure coding and reimbursement software; skin, wound care, and infection prevention products and solutions; dentistry and orthodontia solutions; and filtration and purification systems.
3M Company was founded in 1902 and is headquartered in Saint Paul, Minnesota, USA.
Economic Moat
Alpha-rich investors target companies with clear competitive advantages from their products or services. An investor can streamline an enterprise’s value proposition with an economic moat assignment of wide, narrow, or none.
For example, Morningstar assigns 3M Company a narrow moat rating. However, the rating was downgraded from wide.
QVI’s value proposition elevator pitch for 3M Company:
3M is the industrials sector’s patent leader and yields a double-digit dividend on a cost basis in the QVI Concentrated Stock Picks, despite or because of its much-publicized product legal woes.
Due Diligence Resources
For a more in-depth analysis of the all-important value proposition, visit 3M Company’s investor relations webpage and its most recent Form 10-K Annual Report submitted to the US Securities and Exchange Commission or SEC.
QVI’s value proposition rating for 3M Company: Neutral.
Returns on Management
QVI Research Report’s returns on management or fundamentals section measures the performance strength of the company’s senior executives by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margin
Per the chart below, 3M Company’s trailing three-year annualized revenue growth was flat, underperforming the industrials sector’s +5.90% median growth. Notably, the company’s topline growth tempered to a negative -4.52% for the most recently reported twelve months.
Farther down the income statement, 3M Company’s three-year, mid-double-digit net profit margin outperformed the sector’s median net margin of +5.89%. However, the company’s net margin was negative in the most recent 12-month reporting period.
Returns on Equity and Invested Capital
3M Company’s senior management produced a three-year high double-digit return on equity, or ROE, well above QVI’s targeted threshold and the sector’s median ROE of +11.91%.
Stock buyback programs often elevate ROE. For example, 3M Company has a history of aggressive share repurchases but has slowed buybacks in light of the product liability lawsuits.
3M Company’s three-year return on invested capital, or ROIC, was above QVI’s threshold and the sector’s median ROIC of +7.00%. In addition, 3 M’s ROIC doubled its weighted average cost of capital, or WACC, by 9.16%, demonstrating that its senior executives are above-average capital allocators. (Source of WACC: GuruFocus)
Nevertheless, 3M’s returns on management have been declining off these three-year median highs in the most recent 12-month reporting period.
QVI’s business fundamentals rating for 3M Company: Neutral.
Next, we’ll look at the company’s returns on management chart, enterprise downsize risks, the stock price’s present value, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.
Disclosure: At the time of this writing, I/we had beneficial long positions in the common shares of MMM and SOLV in our family portfolio. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this post.