hi i'm jimmy in this video we're going to look at 3m ticker symbol mmm so this video is part of a
new series we're really a series we're starting over again where we analyze all 30 stocks in
the dow jones industrial average the goal of this series is to see which of these companies
are good buys we're gonna look quickly at each of the businesses uh understand the basics of the
business come up with a fair value of for each of these stocks and where it might be a good place to
buy and then hopefully we can use this information to improve our investment portfolio and ideally
get us closer to our goal of achieving financial freedom okay so let's jump right in with three
okay first these are the segments that 3m operates their business in 3m's largest segment is their
safety and industrial segment and i've broken this down by revenue uh revenue coming out of 2020.
and 3m also provides enough data for us to break this segment even further these are sub segments
within the safety and industrial segment now i should point out that this personal safety segment
represents about 38 of revenue in 2020 but in 2019 that very same segment accounted for just 30
percent of this segment's total revenue and as we might have guessed well the reason for this shift
from 2019 to 2020 is that this is a segment that makes 3m makes a whole bunch of face masks this
is a segment where they account for that revenue so clearly 2020 was somewhat of an unusual year
in that mass sales went through the roof so a lot of that revenue sort of was jacked up last year we
can expect as time goes on for that to gradually normalize but for now we did have a spike in that
now one of the real advantages of 3ms business in general is how diversified they really are
sure they're in a few different segments but as we can see they're in a ton of different segments
within those segments they really create a ton of different products and those products tend to be
fairly needed in the industries that they serve okay on to their next segment next up they have
transportation and electronics this account for 26 of revenue last year for 3m and once again we
could break this segment down further and within this segment well this is where they account for
a lot of their uh uh their automobile parts and semiconductor sales things like that get accounted
for in within this segment okay then their next largest segment is their healthcare segment this
segment represented about 24 of 3m's total revenue a closer look at the healthcare segment once again
highly diversified that's going to be a consistent theme throughout everything that this company does
the largest contributor to revenue within this segment is in their medical solutions business
and basically what this whole segment does is they make products for doctors office dentists
they have some food safety products overall very diversified their final segment is their
consumer segment and it accounted for about 16 of their total revenue and when we look
within this segment well we can see that home improvement is a very large contributor to
this they have a lot of products in all the major retailers out there lowe's home depot
walmart they're all over the place they make a lot of paint supplies they make a ton of tapes
uh stationary products they own post-it so post-it notes they own that basically they have a ton of
products and a ton of different walks of life if we get nothing else if we remember nothing else
besides when looking at their segments they're very diversified and a lot of their products are
necessary in the industries that they serve which should add to their sustainability of the revenue
so with that being said let's shift over to some of their numbers now so this is revenue going
back quite a few years and we can see revenue has gradually shifted higher but frankly it's been a
very slow rise for revenue in general now i should point out that i found analyst estimates for the
next two years so what uh these are average and analyst estimates that i was able to find going
out the next couple years and we can see they look like they're expecting slightly higher numbers but
if that doesn't happen well suddenly this chart doesn't look like it's growing quite
as much and it seems like it's been much more stagnant in recent years so we're going to want
to watch revenue as time as the years go on do they increase their revenue steadily from here
then we're going to shift over to earnings per share this is their earnings per share going
back to 2005 and as we could see this number is growing at a much more rapid pace than revenue
was so this is a very good sign for investors and i think it should bring upon the natural question
how is revenue growing fairly fairly slowly while earnings per share is growing fairly quickly at
least quick for this type of company well i found a few decent answers to this particular question
first is gross margins so not gross margins profit margins so these are profit margins going back
the past few years and if profit margins improve so let's say we had flat revenue revenue didn't
change at all but profit margins meaning they made more money on the same amount of revenue
if profit margins got higher revenue i mean earnings per share would get higher so you
could end up with slow growing revenue and fast growing profits and we could see that profit
margins are in fact improving this is one of the advantages of 3m is that their profit margins are
some of the best in the industry compared to some of their close competitors they have very good
profit margins now i should also point out that i have messed with the scale here i do not start at
zero the reason for that is i just want everybody to see the overall trend i think it's easy to see
the numbers if we zoom in a bit so i don't want us to think that uh that was on purpose i did that
deliberately so we could see it that's why i'm pointing it out so like i said they have solid
profit margins and another strengths of 3ms that i came across as i was researching the company is
that they have very solid research and development investments every year which should continue to
push many of their brands forward okay now another piece to this puzzle is their stock buybacks
so we can see that earnings per share has been going up and we know the pro that revenue has
been saying about the same yet earnings per share is going up and that's at least partially due
to their profit margins improving but if 3m also went out and bought back stock well that would
make their earnings per share look even better since there would be less shares outstanding after
a buyback which would make each share worth a bit more you could get this number to really ramp up
ramp up if you bought back a lot of stock and one good way that i've found for us to see
exactly what 3m is doing with their stock buybacks or even if they're issuing more shares
is that if you go to any quarterly report or any annual filing that the company does they're going
to list the present shares outstanding what are the shares outstanding at the end of that
quarter so what i did is i went back and pulled down the numbers going all the way back to 2005
on a quarterly basis that way we could create this chart so we could see the trend of what is really
happening with shares outstanding and we can see that they have been fairly persistently decreasing
the amount of shares out there so in theory this is a good thing because again if they continue to
if we own shares and they continue to decrease the shares outstanding our shares become worth more
okay now the next question should be how much do we think their stock is currently worth with the
car and shares outstanding so for that we'll shift over to our discount of free cash flow calculation
and if you're curious how to do this calculation i actually created a video
created an excel template i did a video on how to come up with all the numbers within
this this is the excel template that i created so if you're curious how to do this how to get that
template i'll leave a link in the description below to that video i have all the information
you need over there but basically what i did is i took analyst estimates for free cash flow we
discounted that by a required rate of return of seven and a half percent we then grew that out by
using a perpetual growth rate of two and a half percent and that gave us a fair value for 3m stock
of about 219 dollars per share and given that 3m stock is currently trading at slightly less
than 200 per share well it would seem that we're right in the range from a fair value perspective
but before we do this we before we just accept this we have to consider their debt so what
we do is we adjust this calculation for net debt which is cash and debt you offset them
and how much is left the new fair value for 3m stock is 193 per share so again 3m is trading
at about 198 dollars per share we're saying it's worth about 193 dollars per share and ideally we
want to add some sort of margin of safety to the to the stock if we're going to consider buying it
for me i like this stock i like the business i think that it could be a very good defensive play
as long as the revenue keeps growing and if i could add as a reasonable margin of safety
personally i'd be looking in the 15 to 20 range so that means i want it to drop 15 or 20 below
the 193 dollars per share before i would consider jumping in and buying now that margin of safety
should really change for each of us based on our on our own level of research so if you're not sure
how to come up with a reasonable margin of safety i actually did a video called when to buy a stock
where i try to narrow down how to come up with a good margin of safety based on the research we've
done so if you're curious perhaps that's a good next video for you to watch i get a link right
here i've got a link in the description below and thank you so much for sticking with me all the way
to the end of the video i really appreciate it thank you and i'll see in the next video