The Possibility Of A Rosy Future With 3M Company - 19 minutes read

The Possibility Of A Rosy Future With 3M Company - 3M Company (NYSE:MMM)

The fast and consistent growth of the dividends remained one of the best things about 3M Company that an investor could still rely on.

The increasing value of sales and net income along with the impressive value of Free Cash Flow and Balance Sheet Ratios continued to present the company's intact fundamentals.

3M Company (MMM) continued to create a rosy future with its positive performance these past few years. The consistency that existed between its profitability and some key financial ratios showed the strong fundamentals of the company. Moreover, the dividend payments have been increasingly appealing with its immense growth over the years that could offer long-term gains and security to its stakeholders. Meanwhile, the seemingly expensive stock price could affect the positive view of a potential investor here. Apparently, it turned to be undervalued when being computed using the Dividend Discount Model.

One could hardly challenge the notion that 3M Company has been lavishing a significant amount of earnings on its investors for a long time. Some notable changes were in 2012-2014 when it rose by 34.6% from $2.54 to $3.42, and by another 19.9% to $4.41. In 2017-2018, it rose by 16% from $4.70 to $5.44. As the values were traced, it could be seen that dividends per share grew more than twice over the past decade. The fast and substantial changes in the dividends per share has been an assurance of solid and sustained growth then. While 1Q 2019 closed with values higher than its comparative time series in 2018, the possibility of higher earnings could be granted. The Dividend Growth Model made an affirmative response to it as it showed a positive result in the estimation. With this, the investors could see another increase in dividends per share as these would be playing at $6.80-$5.45 for the following years.

Upon using the Dividend Growth Model, future values were projected.

Both net income and dividends have been immensely growing. With an average Dividend Payout Ratio of 45.31, one could infer that net income remained highly sufficient to increase its dividend payments and further strengthen its operations to realize higher earnings. On average, their gap from 2008 to 2018 amounted to $2.42 billion. This could continue for the next five years as estimated. The sustained increase in net income could erase the possibility of a dividend cut.

Taken from Nasdaq and MarketWatch

Upon using the Dividend Growth Model and Linear Trend Analysis, future values were projected.

Free Cash Flow (NYSE:FCF) increased substantially over time. Having a similar trend with net income, it also remained higher than the dividends. With an average value of $4.37 billion for the last 10 years, their gap remained at $2.30 billion on average which could be managed very well for the next five years. This confirmed the sustainability of the company's net income relative to the dividend payments which fortified the observation on the low or almost non-existent probability of a dividend cut.

Taken from Nasdaq and MarketWatch

Upon using the Dividend Growth Model and Linear Trend Analysis, future values were projected.

3M Company kept soaring throughout the years. The continued growth in its operations just proved how it became an enduring figure in the industry. Its strong operating capacity and market power remained the key factors of its impeccable performance.

The combination of its sustained demand and good pricing strategy primarily drove the increasing movement of its operating revenue. It might have experienced setbacks such as the $2.1-billion revenue decrease in 2008-2009 and another $1.7 billion in 2014-2016, but this conglomerate kept making a worthy comeback and proving its durability. With an average annual growth rate of 2.84%, the operating revenue already grew by $7.50 billion as it rose from $25.27 billion in 2008 to $32.77 billion in 2018. Since 2013, it never landed below $30 billion which became an assurance of its sustainable operations. This could continue for the coming years as the estimation showed that it would be playing between $33-37 billion in 2019-2023. This could be possible due to the progressive turn of technology in many areas. Also, its acquisitions earlier this year could bring more value and create better business segments which could further strengthen its operations in the long-run.

Meanwhile, 1Q 2019 ended with quite disappointing results as it fell below the expectations of the company. Sales dropped by 5% from its comparative time series due to as it the slowing conditions in key end markets affected its operations. The revenue moved from $8.3 in 1Q 2018 billion to $7.86 billion to 1Q 2019. Nevertheless, the company responded to it with restructuring efforts and realignment of its business groups to increase efficiency. Also, it was still higher than 1Q 2016 and 2017 at $7.41 billion and $7.68 billion, respectively.

Upon using the Linear Trend Analysis, future values were projected.

3M was able to control its costs and expenses. With an average annual growth of 2.43%, it gradually rose from $20.07 billion in 2008 to $25 billion in 2018. This resulted in an average value of $22.8 for the last 10 years. With this, it could be seen that the revenue remained higher and moved faster than the costs and expenses. As a result, operating income continued to increase from $5.2 billion to $7.77 billion. This showed that as the company increased its operating capacity, both its sales and costs increased as well. The efficiency of 3M matched with the increasing market demand resulted in higher profitability of its core operations.

So even if the company saw a decrease in its revenue as 1Q 2019 closed, the company remained efficient as it realized a higher value of operating income. From $1.01 billion in 1Q 2018, it increased to $1.14 in 1Q 2019. With the action plan that the company implemented recently, better results at the end of FY 2019 could be seen.

Upon using the Linear Trend Analysis, future values were projected.

Even if the non-operating expenses have been increasing, 3M kept it at a manageable level. With an average growth rate of 4.7%, it only grew by $820 million as it moved from $1.6 billion to $2.42 billion in 10 years. As expected, net income kept increasing as well. From $3.64 billion in 2008, it rose to $5.35 billion in 2018. This could tell us that as the company made its core operations profitable, it was able to effectively manage its non-operating transaction to come up with an increasing value of its bottom-line earnings. This gave confidence to its stakeholders as this showed that the company remained adequate enough to meet its financial obligations. Likewise, its 1Q 2019 presented a higher value at $890 million compared to $600 million in 1Q 2018. And Nasdaq's projected EPS would be multiplied with the current weighted average shares, net income for the remaining quarters of FY 2019 would be even better. Indeed, this impressive result could agree with the positive outlook for the next five years as projected using the Linear Trend Analysis.

Upon using the Linear Trend Analysis, future values were projected.

Net Income for 2Q, 3Q, and 4Q 2019 was derived using Nasdaq's projected EPS.

With the moderate change in WAV, EPS had a similar trend with net income. Over the past decade, it could be seen how earnings per share changed from $4.89 to $8.89. And like net income, 1Q 2019 presented a higher value at $1.51 compared to 1Q 2018 $0.98. This showed the increasing profitability of the company in reference to its shares. Nasdaq and The Wall Street Journal also expressed their respective optimistic view of its performance for the remaining quarters of the year.

Upon using the Linear Trend Analysis, future values were projected.

Net Income for 2Q, 3Q, and 4Q 2019 was derived using Nasdaq's projected EPS.

For the last five years, the company's current assets are twice as much as its current liabilities. From $10-$11 billion, the assets continued to increase to $13-14 billion while the liabilities kept playing between $6-$7 billion. With this, it could be concluded that the assets were more than enough to cover all its short-term obligations. As the company remained profitable, its liquidity remained substantial. This also showed the consistency between the company's profits and the sustainability of short-term resources.

How profitable was the company relative to every asset it purchased? For the last 10 years, MMM's assets have been increasing significantly along with sales and net income. From $25.79 billion, continued to increase to $36-$38 billion which could show the vast resources of the company.

In reference to its operations, the company continued to generate an increasing amount of sales over the years. As a result, the Asset Turnover Ratio kept increasing as well. On average, it had a ratio of 0.91 which could show that 1 asset= $0.91 sales or for every asset purchased, the company realized a corresponding revenue of $0.91. The same scenario could be seen in the trend of Return on Asset (ROA). With 13.95 as its average ROA, this could mean that for every asset that MMM purchased, it had 13.95% net income from it. Currently, MMM has 14.66% as its ROA. As projected using the Linear Trend Analysis, it could be observed that it would rise to 15% in 2019-2023.

The thing is, as the company increased its resources and operating capacity through its acquisition/purchase of assets, its sales and earnings kept increasing as well which could even continue in the succeeding years. As the values from its operations increased faster than the assets, one could see that MMM had increasing productivity, profitability, and adequacy to continue increasing its operations and sustaining its dividend payments and other financial obligations. The similar trend of these accounts showed the consistency that existed with the company's profitability and long-term sustainability which could be a testament to its strong and intact fundamentals.

Upon using the Linear Trend Analysis, future values were projected.

Upon using the Linear Trend Analysis, future values were projected.

This reaffirmed the sustainability of net income relative to the dividends. Both net income and dividends have been increasing over the years but the former did so in a much higher and faster way. As their gap widened, Retained Earnings continued to increase. The fact that it continued to increase over the years could tell us that the company has always been adequate enough to increase its dividend payments. The increasing profitability of the company which moved positively with Retained Earnings could tell us the sustainability of the company for a long period since this represented the accumulated amount left after directly deducting dividends from net income. The fact that the company had both impressive profitability and long-term sustainability must have given confidence to many investors. Even if the company tried to exhaust itself to pay all its obligations to its stakeholders, there would still be billions to reinvigorate the company's operations and even increase the dividends. As the projected values were shown, this would still go higher at $40-$50 billion in the succeeding years.

Upon using the Linear Trend Analysis, future values were projected.

The stock price remains bullish even if it has been decreasing since the latter part of June. It has noticeable volatility as it dropped from $172 to $165.70 in just three trading days. At its current price, MMM seems to be an expensive one to buy. But with its PE Ratio of 17.51, it only requires one to spend $17.51 for every possible gain he may realize. With these details, is the price reasonably cheap or already overvalued? To assess with the gains, the Dividend Discount Model will be used.

With this result, it can be seen that the stock is still undervalued by $15-$20. If this factor alone will be taken into consideration, buying a stock here is highly recommended. However, one must still remember how volatile the price has been these past few days. Also, there are other factors that can give a substantial impact on its movements such as the hype and demand, press releases, financial health of the company, and the like.

As this fiscal year opened, 3M Company completed its acquisition of the technology business of M*Modal for $1 billion. This offers AI-powered systems for better delivery of healthcare services. With this, the MMM's Health Information Systems could be further enhanced. As this could add efficiency in this segment, an added value in the company could be realized as it has been working with more than 8,000 healthcare organizations in the world. With an estimated annual revenue of $200 million from M*Modal's technology business, higher revenue could be expected during the year. This could also create partnerships with the government, as well as other leading companies and organizations that offer similar products and services, to further strengthen its operations. Thus, higher earnings could be realized if this would continue to be a success in the industry.

To further boost the performance of 3M's healthcare segment under the Personal Safety Division, it entered into an agreement to acquire Acelity Inc. along with its subsidiaries. Acelity has long been known for being one of the top providers of advanced wound care technologies and solutions. This could further bolster the performance and the successful realignment of the company since it fits the division's products and services. With Acelity's popularity mixed with 3M's enhancement of its healthcare solutions and services, higher sales could be witnessed as this would also strengthen the company's presence in healthcare. Higher performance could lead to higher earnings for the company and its investors.

MMM Would Sell Gas and Flame Detection Unit (MMM to Sell One of its Business Units)

As one of the steps to focus on other units under its Personal Safety Division, MMM considered the $230-million offer of Teledyne Technologies Incorporated to buy its Gas and Flame Detection unit. As the company entered into an acquisition of companies earlier this year, this move would be more strategic on MMM's part to continue focusing on its more desired business unit. On top of its target gain from this sale, more efficient sales and cost reductions could possibly occur in the future. Given this, a higher margin would be realized which could further stimulate the company's performance and adequacy to suffice dividend payments in the long-run.

Responding to Global Problems Through Science (Science to Solve Global Problems)

Amidst the growing skepticism, a survey revealed that science continued to play a primary role in solving global problems in different areas. And through science, a brighter future could still be hoped for. As the world now needs more science and technology advocates, this gives 3M a chance to step up and be ahead of the increasing needs and progressive trend of the world. As the company continued to make advanced products and services in all its business segments, it could attract more interest from a larger number of people and groups across different markets. It could make collaborations that would foster growth and strengthen its influence and ties for improved performance in the future.

As time went by, MMM remained strong and adequate enough to meet the market demand as well as its obligations to its investors and creditors. Its solid financials have been proven by the consistent trend of its sales and earnings with key financial ratios and even FCF. The high capacity of the company to operate and distribute dividend payments could be seen as it means to do so kept moving faster and higher. Along with this was the sustained growth in its dividends which became increasingly significant over time. The gains and security that every stock here could offer is still something that one could ponder. However, one must still remember that this could not come up with an exact estimation of the future performance of the company. Nevertheless, the agreement between profitability and long-term sustainability that has been observed could assure an investor of its capability to realize and distribute higher earnings even in the long-run.

Meanwhile, the undervalued stock gave a rosy picture of high returns even in a short period. However, the noticeable volatility of the price these past few days should highly be considered. The unpredictability of the stock price could result in high gains or losses. Thus, an investor is advised to watch for other factors that could affect it and always update himself on the company's performance and transactions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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Said Belali commented on The Possibility Of A Rosy Future With 3M Company about 2 months ago

Thanks to be near some parts parties to define the goals and the choice with some parts parties