A Closer Look At 3M’s Valuation

by Trefis Team
-6.66%
Downside
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Market
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Trefis
MMM
3M
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3M (NYSE:MMM) ended its FY 2017 on a high note, posting robust organic growth across all business groups and all geographic areas, and handily beating consensus estimates on both earnings and revenues, even after excluding the benefit received from the recent tax reform enacted by the Trump administration. Impressive organic sales growth of 5.2% was noted for the company as a whole, including 6.1% in Safety & Graphics and 11% in Electronics & Energy segments. The company’s biggest segment – Industrials – also reported a strong 4.9% organic growth. The sales growth, together with raw materials and price benefit and divestiture gains, helped to expand the operating margins to 24.7% for the year. Given the robust performance, as well as the impact of the tax reform, 3M provided an updated guidance for 2018. Earnings of $10.20 to $10.70 per share are now anticipated, up from the previous range of $9.60 to $10., with the tax rate expected to be 20% to 22%, versus the prior range of 26% to 27%. Organic sales growth forecast, at 3% to 5%, remains the same.

We have a $267 price estimate for 3M, which is above the current market price. We have also created an interactive dashboard which shows the forecast trends; you can modify the key value drivers to see how they impact the company’s revenues, bottom-line, and valuation.

Industrials growth is expected to be powered by improvement in developing markets.

Portfolio changes will benefit the company’s Safety & Graphics division.

A growing middle class in developing economies, together with an aging population will increase the demand for 3M’s Health Care products.

Strong growth in the Asia Pacific region will ensure increased revenues from the Electronics & Energy segment.

Growth in white collar jobs will result in an improvement in Consumer revenues.

Revenue is expected to increase 6.5%, while the EBITDA will grow by over 7%. EBITDA margins are anticipated to improve on the back of organic volume growth and productivity.

We have used a P/E ratio of 25.3 for our valuation estimate, but you can modify the multiple in order to come up with your own valuation estimate for the company.

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