The 3M Company is a multinational conglomerate founded in 1902 year in Minnesota, US. Currently there are five business groups:

  • Consumer
  • Electronics and Energy
  • Health Care
  • Industrial
  • Safety and Graphics

Above segments are “broad in names”, but variety of products offered by company is huge. Company sells more than 55 thousands different products. The main brands are Command™ Mounting Products, Scotch-Brite® Products, Filtrete™ Filters, Scotchgard™ Protector Products, Nexcare™ First Aid Products, Scotchprint™ Graphics, Post-it® Products, Vikuiti™ Products, Scotch® Tapes and Adhesives.

Split of revenues and operating income for business segments is presented below:

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2016 year should be strong. Company forecast 7% to 12% earnings growth (driven by operations), which means EPS around $8.1 – $8.45.

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Cash flow should be strong (as always), with strong emphasize on return to shareholders.

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As it comes to financials (estimates):

Market cap ~ $90B

Net debt ~$9B

Payout ratio ~55%

ROE ~35%

Beta = 1.2

Dividend yield 2.8% + net buyback around $4B (buyback yield = 4.4%), so in total around 7.2%

 

Estimated valuation ratios:

EV/EBITDA = 8.4

P/E = 19.5

 

3M is one of The Dividend Kings. Company is paying dividend from 1959 year. Current dividend yield is around 2.8%. It is about historical average, so nothing special. In the peak of dividend yield in 2009 company was paying 5%, drawdown to around 3.5% should be treated in my opinion as a time to buy shares. Currently just neutral.

 

Drawdown risk analysis:

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Share price is in the growing steadily. Drawdowns around 25% were historically attractive. On the other hand from the bottom in 2009 share price quadrupled and in my opinion during a next crisis there is a huge gap for derating on multiples. I would expect higher drawdown (25%) to buy shares – around $130 would be interesting. Then P/E for next year should be around 16, and dividend yield around 3.2%.

Awesome long term performance:

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Summing up, 3M is a great company to invest in a long term, but the question is about timing. Current valuation is demanding, but on the other hand returns to shareholders are satisfying. Current drawdown is around 12%, historically levels around 25% drawdown were good entry points. It means I will probably buy shares at $130.

 

Disclaimer 3M – no position