Hey YouTube I'm Jimmy
in this video.
I'm going to walk through my analysis of
3M ticker symbol
m m m.
This video is going to be part of a series
where I go through all 30 stocks
in the Dow Jones Industrial Average.
My objective with this video
and in the whole series is
to try to identify which companies
look promising from an investment standpoint.
At the end of the series I'll do a video
summarizing the companies that I find
to be most appealing.
So if investing is something you
do or something that you want to do
then hit subscribe
and don't forget to hit the bell icon
so you can get notifications whenever
we issue new videos.
OK let's get started.
So what is 3M.
Well 3M makes pretty much
everything.
They have five different segments listed in
their financial statements
and those are Industrial
Safety & Graphics health
care electronics & energy
and consumer products.
The industrial segment is the largest
but revenue is impressively
spread out among all five segments
which is a good thing when it comes to
revenue stability.
Here's some data that I think is useful for 3M.
They have a trailing 12 month PE of about
22 and a half their forward
PE is about 19
and half.
To put that in perspective the trailing
twelve month PE for the S&P 500
is about 21.
They have a dividend yield of about two
and a half percent.
They have a market cap that is
close to 125
billion
and earnings per share has
grown at a five year
compounded annual growth rate of
a bit over 6 percent which
is pretty good.
Over the next few years analysts forecast
earnings per share growth to continue
in the 6 to 7 percent
range which is also quite
impressive so recently management hosted an analyst
call with a mapped out their game plan.
Basically they said that they're going to focus
on developing new products which
they currently do a great job
and they voiced a shift
from putting money towards buybacks
which they've done a lot of lately
to instead they're going to look for more opportunistic
acquisitions to put out
how effective their buyback program has
been. Take a peek at this chart.
This is a chart of revenue.
Have had a slight pull back in 2015
and 2016
but they've recovered nicely.
But when we add in earnings per
share we can see that earnings
per share continue to climb
rather nicely.
It's been quite consistent.
This is partly due to
two reasons, first buybacks
and second they spent some time
recently trying to improve margins
which they've had some success with.
Now the advantage to improving margins
is that if you can improve
margins even if you kept revenue
exactly at the same level earnings per
share could continue to climb.
This is a good thing.
Another interesting point for 3M is
on the last earnings call
management lowered the top end
to their guidance by about 10 cents per share.
Now it wasn't all bad because in
a same call management explained
that in the second quarter of 2013
organic revenue growth was
a bit over 5 percent as a bit
of a five and a half percent actually which was
among the best in the industry.
So the question is what does this do for
valuation.
OK so now what's try to come up
with the value.
So 3M is currently trading at about
210 dollars a share.
Now we know that 3M has a trailing
P E of about 22
and a half and the S&P 500 is
at about 21.
3M forward P E is about 19
and a half.
So I believe that if you look
at the growth of 3M versus that
of their competitors
or even the S&P 500 as a whole
3M deserves to be trading at a premium.
And I think that it should be greater
than the current premium.
So if we apply a PE multiple about
23 times to 2019
expected earnings per share we come
up with a fair value of
about 270 dollars per share.
Now for 2019 earnings per share estimates
I'm just going
with consensus and now to make the case that the multiple
or even the projections should be a bit
lower a bit higher.
Either way with the current price of about
210 dollars per share
thanks to the 9 percent pullback
during 2018 we can see
that 3M could be undervalued.
And I think that it could
present an opportunity.
Now one thing that I think can be helpful when we research
company that recently pulled back
is to try to identify
why it pulled back.
I want to know if the
reason a pullback was a one off that shouldn't
affect things going forward if you had something instrumental
to perhaps the future of the business.
Well when we look at 3am
we can see that right before the peak 3M
reported earnings and they did pretty good in their
earnings.
Then the next day news hit
the wire that they're going to be paying 600 million
dollars into their pension plan
because of the tax deal that was just signed.
Sure this is more than expected I think they expect
between 3 and 5 hundred million.
But this wasn't a terrible thing because that
should pay off for them in the long run.
But then I saw a few interesting things.
First the vice chairman was selling
shares and insiders
leading up to the peak had sold more than a hundred
ten thousand shares at an average
price of about two hundred thirty nine dollars.
Sure. That couldn't have helped.
But what I think was one of the most important factors
was the market itself is pulling back
that time
and 3M was a big part of that.
So I think that that added to
at least the sharpness of the decline
in addition to insiders selling shares
then over here.
Well this is a trade war.
3M is a global company
and if trade becomes a real
issue then they could be adversely
affected by it.
I think this is a legitimate fear
and I think this is something we need to keep an eye on
as we consider what our next move is
in addition to the trade concerns.
3M announced that they were going to be
switching CEOs
later in 2018.
But on the day that they actually
announced it the market didn't react much.
So I'm not sure how much this played into
the drop itself.
Finally right over here.
Well this is right after the first quarter announcement
and management lowered guidance
and then the market sold off well
since then there was another quarter announcement.
And as I mentioned before management did
lower the top end of the guidance after
they sold off a piece of their business
and it seems that in this
area here the market
seems to be okay at least for
now with 3M's general direction.
I believe that 3M appears to be
a solid company
but I want to go through
the rest of the stocks in the
DOW to determine which one will be the best.
So in this series what I plan
on doing is analyzing all 30 companies
and basically what I want to do is build
a portfolio of what
we consider would say ideal stocks
for the long term.
This is a longer term
portfolio that I'm going to call my ideal
portfolio.
That being said I may have
to. After analyzing all 30 stocks
in the DOW we may have to go outside of the
Dow. So at the end of the 30 we may go
to other companies to
make sure that the portfolio has the
diversification we need
or perhaps we want a higher dividend yield
things like that. Maybe a stronger growth.
But you know what we'll get further into that down the road.
for now what do you think of 3M.
Is this the type of company that fits into your
portfolio.
What has your research uncovered
for you about 3M
and what do you find most
interesting about this company.
Perhaps something I mentioned was something I didn't mention
put in the comments below
and if you've made it this from the video.
Thanks a ton. I really do appreciate it.
And if you haven't done so already hit the subscribe
button and look forward to seeing
you in the next video.