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In this updated coverage research report, we reexamine 3M Company — MMM 0.00%↑— an industrials sector enterprise, to see if it continues to meet QualityValue Investing’s (QVI) Real-Time Stock Picks criteria based on our proprietary checklist analysis of the business’s current wealth and the share price’s present value.
3M Company | Current Wealth
Value Proposition
3M is a dividend-paying large-cap stock in the industrials sector’s conglomerates industry. It was added to the QVI Real-Time Stock Picks on July 21, 2010, at a cost basis of $43.96 per share, adjusted for dividends paid in cash.
3M Company provides diversified technology services in the United States and internationally. The company operates through the Safety and Industrial, Transportation and Electronics, and Consumer segments. It offers its products via e-commerce and traditional wholesalers, retailers, jobbers, distributors, and dealers. 3M Company was founded as Minnesota Mining & Manufacturing in 1902 and is headquartered in Saint Paul, Minnesota, USA.
Economic Moat
Morningstar assigns 3M Company a narrow-moat rating driven by intangible assets and cost advantages. However, Morningstar’s confidence in 3M’s ability to generate returns on invested capital above its cost of capital over a multidecade period has waned substantially in recent years. As evidenced by declining gross margins, returns on capital, and organic volume growth, its analysts believe 3M’s economic moat is weakening further. The company also faces substantial legal uncertainties regarding PFAS.
QVI’s Value Proposition Elevator Pitch for 3M
3M Company is the industrials sector’s patent leader and yields over 6% on a cost basis in the QVI Real-Time Stock Picks, despite or because of its much-publicized product legal woes.
QVI’s value proposition rating for 3M Company: Neutral.
Returns on Management
Revenue Growth and Net Profit Margin
As the table below shows, 3M Company’s trailing three-year annualized revenue growth was flat, lagging behind the S&P 500’s topline growth of +16.80%. Moreover, the company’s flat revenue growth of -0.40% underperformed the broader market’s +19.30% increase for the most recently reported twelve months.
Further, down the income statement, 3M had a mid-double-digit net profit margin from a 42.30% gross margin. In addition, it aligned with the S&P 500’s net profit margin of 20.90% from a gross margin of 55.40%.
Returns on Equity and Invested Capital
3M’s senior management produced a return on equity, or ROE, six times the QVI’s targeted threshold and double the S&P 500’s ROE of 55.40%.
Stock buyback programs can elevate ROE. For example, the 3M board of directors approved repurchasing $1.38 billion of its shares in 2023 and 2024.
3M’s return on invested capital, or ROIC, aligned with QVI’s threshold while lagging behind the broader market’s 23.40% return. In addition, the company’s ROIC only slightly exceeds its weighted average cost of capital, or WACC, demonstrating that its senior executives are average capital allocators. (Source of WACC: GuruFocus)
QVI’s business fundamentals rating for 3M Company: Neutral.
Click or Pinchout to Expand
Next, we’ll examine the company’s enterprise downside risks, the stock price’s present value, including share price downside risks, and the investment thesis, all exclusive to Quality Value Investing’s premium (paying) subscribers.
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Unless noted, all data presented is sourced from Charles Schwab & Co., Yahoo Finance, and The 3M Company Company as of the market close on January 14, 2025, and is intended for illustrative purposes only.
Disclosure: As of the writing of this research report, I/we hold no beneficial position in MMM common shares 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 subscriptions paid to Substack. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, meaning they are not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider consulting a fee-only certified financial planner, a licensed discount broker/dealer, a flat-fee registered investment adviser, a certified public accountant, or a specialized attorney before making any investment, income tax, or estate planning decisions.
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