Tuesday, 4 August 2015

3M Seems Fairly Priced

3M Company (NYSE: MMM)
Industrial Goods; Diversified Machinery; HOLD

3M’s diversification, scale, cost control and execution is decent. The company also supports a decent dividend and is consistently repurchasing its common stock. It is also investing in R&D to maintain the differentiation factor of its products. But, the stock is already trading at a premium compared to its peers. We don’t think that 3M has much to offer as far as value investors are concerned. However, for a low-risk dormant investment, 3M may be the pick of the pack. Overall, we rate MMM a hold at its current price.

3M is a well-developed and diversified company, which makes it a safe investment for a longer term. The company offers products for wide range of industries and, hence, is shielded from industry specific declines. The key to 3M’s success is its investment in technology. The company is planning to increase its R&D to 6% of the revenue by 2017 compared to 5.7% in 2014. The company has $1.4 billion as intangibles on balance sheet, which is impressive for a company selling mostly consumables.

On the flip side, the company generates most of its sales from international markets, top line is taking a hit from FX fluctuations especially U.S. dollar. Despite organic growth in several segments, 3M recorded a decline is revenue after accounting for currency fluctuations. Dollar is on a longer-term trend higher, according to some analysts. Rising interest rates and European QE is helping the case for a higher dollar.

Complete Story with a Valuation Focus is available on Prudena