About 3M

While one might assume according to the ticker symbol (NYSE: MMM) that we are writing about a food stock today, that is sadly incorrect. Instead, our team will be analyzing a company as historically blue chip as it gets. Founded in Two Harbors, Minnesota in 1902 by Henry Bryan, Hermon Cable, John Dwan, William McGonagle and Danley Budd, we will be digging into the financials behind 3M.

If you are unfamiliar with the company, 3M is a huge American conglomerate that sells a wide array of products in industries such as construction and house tools as well as other types of appliances and medical equipment (and more).

Some of the brands owned by 3M that might ring a bell include Post-it notes, Scotch tape and Command adhesive strips and other brands that likely surround you when you’re at your local big box retailer.

There are some very strong brand names under the 3M umbrella, however, we can’t trust the brands alone.

We need to find out whether or not this company is worth investing in given all of the inflationary pressures that come with overseeing the operations and sales of all of these well-known household brands.

You would likely assume that a company that’s been around for over a century has learned to do something right but let’s find out for ourselves.

3M’s stock financials

At a current share price of around $130, the company has a current price-to-earnings (P/E) ratio of just under 14. According to the P/E ratio alone, 3M stock appears to be modestly undervalued since it is below 20, which is generally said to be a stock’s fair value or what a stock is worth paying for.

Getting a little more familiar with the company’s financials, they maintain just over $47 billion in total assets and approximately $32 billion in total liabilities. Prior to looking at the company’s balance sheet, we predicted that their total assets and total liabilities would’ve been about the same since the company has so many operations across the globe plus we assumed that the cost of inflation would’ve increased their total liabilities dramatically, specifically in the past two years.

Thankfully, it appears that 3M is controlling their total liabilities pretty well as they’ve been pretty steady (not dramatically increasing) over the past few years.

Onto the company’s income statement, their total revenue has been pretty steady, staying in the mid-to-low $30 billion range.

One thing you shouldn’t realistically expect from a seasoned company like 3M is leaps of revenue growth each year. Remember how in our podcasts and previous articles we discuss the idea that companies can only grow so much and so quickly? 3M is a prime example of this.

However, as we see it at MacroHint, boring isn’t necessarily bad!

In addition to the company’s steady total revenue numbers, 3M’s net (total) operating cash flow has generally been in an upward trend since 2017, dropping down slightly from 2020 to 2021, which makes sense given all of the global supply chain struggles.

3M’s stock fundamentals

They say that with great power comes great responsibility. While we think that’s true, our version of that is “with great brand power should come great profitability.”

3M seems well aligned with our version.

Specifically, the company’s trailing twelve month (TTM) net profit margin is almost 6% higher than that of the industry. Some large, established companies have trouble with achieving a profit as they grow in size for various reasons; thankfully, 3M doesn’t appear to have those problems.

It should also be noted that the company also pays out a handsomely high annual dividend of $5.96.

Not only are you getting a stake in a profitable, proven company but you are also getting nearly $6.00 annually for owning a share in the company as well.

From a returns standpoint, 3M takes the cake as well.

For instance, the company’s trailing twelve month return(s) on equity, assets and investment are all substantially higher than the industry average. Specifically, the company’s trailing twelve month return on assets is nearly 7% higher than that of the industry and the their return on investment is around 7% higher than the industry average as well.

Risks with 3M’s stock

The numbers look great for one of the most seasoned conglomerate companies in the world. However, one should note that the company’s stock price has in a modest descent in the last year which can likely be attributed to general cost increases and general market volatility.

We’re more worried about the first one.

3M and its consumer conglomerate counterparts seem especially sensitive to supply chain-related issues and the heightened costs associated with this, let alone trying to keep costs low so as to gain more market share in the inflationary environment we’re living in today.

The company sells a lot of packaged goods to stores and establishments all over the United States and to countries abroad. We don’t see inflation letting up anytime soon, therefore 3M’s stock price is likely to keep gradually falling as costs and cost concerns continue to mount.

Suffice it to say, the core financials for the company look very strong and if any company is equipped to fend off inflation, its 3M. Our opinion is simply that (prospective and current) shareholders should be prepared to continue seeing the company’s stock price fall as long as inflation remains a major threat.

Should I buy 3M stock?

Given this company’s strong core financials, their considerably high dividend, the household brands that the company owns, their track record, industry position and relative ability to deal with inflation, we give 3M a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.