Valuation Scorecard: Stock Rating C-Low Neutral (3/25/24)-3M Co (MMM).

At the current price of $105, what are market expectations regarding 3M’s future operating performance? To achieve average annual stock market performance of 9.0% over the next 6 years, 3M shares will need to reach $176. To achieve Upper quartile performance, 3M’s stock price will need to reach $207 by 2029.

Executive Summary

• Price Target Research identifies 3M as having: stability, low financial strength, very low profitability, and very low expected growth.
• Average valuation, below market shareholder returns. Current valuation levels are average relative to the 3M Peer Group. Recent market returns have underperformed the 3M Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, 3M shares should reach a level of $84 by 2029 — an 2.6% per year total shareholder return. A 2029 stock price of $176 would reflect median performance and a price of $207 would be required to reach upper quartile performance.
• 3M’s past growth is slightly below average. Historical growth has been below average relative to the 3M Peer Group and forecasted growth is relatively very low. Revenue Growth, Equity Growth, and EPS Growth have lagged. These factors have negatively affected market perceptions of 3M. 3M’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. 3M’s consensus growth expectations are in line with past growth.
• Pretax Margin, Pretax ROA, and Return on Equity are group lagging. These factors have negatively affected market perceptions of 3M. The company has high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• 3M’s risk profile is unfavorable. Overall variability has been only average with only average revenue variability, relatively low E.P.S. variability, and relatively low stock price volatility. Financial Strength is very low and earnings’ expectations are very low. The debt/capital ratio has risen very significantly.

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