3M Co (MMM, Financial) has recently registered a daily gain of 4.19% and a three-month gain of 8.38%. Despite a Loss Per Share of 2.84, the stock is deemed significantly undervalued. This article aims to provide a detailed analysis of 3M Co's valuation, financial strength, profitability, and growth to guide potential investors in their decision-making process. Let's dive in!
Company Overview
3M Co, also known as Minnesota Mining and Manufacturing, is a multinational conglomerate with a rich history dating back to 1902. The company is renowned for its research and development laboratory, leveraging its science and technology across multiple product categories. As of 2020, 3M Co is organized into four business segments: safety and industrial, transportation and electronics, healthcare, and consumer. Nearly 50% of the company's revenue comes from outside the Americas, with the safety and industrial segment constituting a plurality of net sales. Many of the company's 60,000-plus products touch and concern a variety of consumers and end markets.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
3M Co (MMM, Financial) is believed to be significantly undervalued based on the GuruFocus Value calculation. With a current price of $103.1 per share and a market cap of $56.90 billion, the stock's long-term return is likely to be much higher than its business growth due to its significant undervaluation.
Evaluating Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy shares. 3M Co has a cash-to-debt ratio of 0.26, ranking worse than 63.83% of 481 companies in the Conglomerates industry. Based on this, GuruFocus ranks 3M Co's financial strength as 4 out of 10, suggesting a weak balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially if they have demonstrated consistent profitability over the long term. 3M Co has been profitable 10 years over the past 10 years. However, its operating margin of -15.34% is worse than 90.31% of 485 companies in the Conglomerates industry. Despite this, GuruFocus ranks 3M Co's profitability as strong.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of 3M Co is 3.2%, which ranks worse than 55.77% of 459 companies in the Conglomerates industry. The 3-year average EBITDA growth is 5.2%, which ranks worse than 61.33% of 406 companies in the Conglomerates industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also provide insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, 3M Co's ROIC was -6.17 while its WACC came in at 8.43.
Conclusion
In conclusion, the stock of 3M Co (MMM, Financial) is believed to be significantly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks worse than 61.33% of 406 companies in the Conglomerates industry. To learn more about 3M Co stock, you can check out its 30-Year Financials here.
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