StreetWise: Highly international 3M Corp. worth a look

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Did last week's market volatility have you thinking about what might have happened, or still might happen, if the political winds shift in the wrong direction; that maybe this is when you should exit stage left for the supposed safety of cash or bonds?

I would encourage you to seriously reconsider any such move.

Unfortunately, market volatility, when combined with a fear of the unknown, readily foments paranoia.

Your task is to strip a company stark naked. Look at its basic financial numbers; analyze its product line, customer base, suppliers and management. Then top off your analysis with some good old-fashioned common sense. After which, with all the pretenses and hype gone, you can make an accurate assessment of the company's true value.

So where to begin? One good place might be the 3M Corp. (MMM). When I last wrote about the company a year ago, my earnings estimate for 2013 was $6.86 per share with a 12-month price target of $118.

Earnings for the year came in at $6.72 per share, while the shares recently closed at $132.68. Sales increased 3.2 percent to $30.9 billion with organic growth of 3.4 percent. Acquisitions added 1.4 percent, and foreign currency took away 1.6 percent. The company converted 89 percent of net income to free cash flow and generated a 20.0 percent return on invested capital.

Management has reiterated its 2014 guidance of earnings in the range of $7.30 to $7.55 per share with organic sales growth of 3 to 6 percent. The downside of a highly international company like 3M is that a rising dollar has a negative impact on sales.

The intrinsic value of the shares using a discounted earnings methodology is $144, while the more conservative free cash flow to the firm model yields an intrinsic value of $146. My earnings estimate for 2014 is $7.45 per share with a 12-month price target of $146, yielding a potential 10.04 percent capital gain. There is also an indicated dividend of $3.42, for a current yield of 2.50 percent.


Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com.


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