3M Co.?s analysis versus peers uses the following peer-set: General Electric Company (NYSE:GE), Johnson & Johnson (NYSE:JNJ), Honeywell International Inc. (NYSE:HON), Danaher Corporation (NYSE:DHR), Illinois Tool Works Inc. (NYSE:ITW) and Tyco International Ltd. (NYSE:TYC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns. CapitalCube published its?Earnings Analysis on?Honeywell International Inc. (HON) on Tuesday.
| Quarterly (USD million) | 2012-09-30 | 2012-06-30 | 2012-03-31 | 2011-12-31 | 2011-09-30 |
|---|---|---|---|---|---|
| Revenues | 7,497.0 | 7,534.0 | 7,486.0 | 7,089.0 | 7,531.0 |
| Revenue Growth % | (0.5) | 0.6 | 5.6 | (5.9) | (1.9) |
| Net Income | 1,161.0 | 1,167.0 | 1,125.0 | 954.0 | 1,088.0 |
| Net Income Growth % | (0.5) | 3.7 | 17.9 | (12.3) | (6.2) |
| Net Margin % | 15.5 | 15.5 | 15.0 | 13.5 | 14.4 |
| ROE % (Annualized) | 26.9 | 28.6 | 28.5 | 23.6 | 25.4 |
| ROA % (Annualized) | 13.7 | 14.3 | 14.1 | 12.0 | 13.5 |
Valuation Drivers
3M Co.?s current Price/Book of 3.5 is about median in its peer group. MMM-US?s operating performance is higher than the median of its chosen peers (ROE of 25.1% compared to the peer median ROE of 13.8%) but the market does not seem to expect higher growth relative to peers (PE of 14.8 compared to peer median of 16.0) but simply to maintain its relatively high rates of return.
The company has a successful operating strategy with above median net profit margins of 14.9% (vs. peer median of 10.9%) and relatively high asset turns of 0.9x (vs. peer median of 0.7x). This suggests that the company has a dominant operating model relative to its peers. MMM-US?s net margin is similar to its five-year average net margin of 14.8%.
Economic Moat
MMM-US?s revenues have changed in-line with its peers (year-on-year change in revenues is 11.1%) but its earnings have lagged (annual reported earnings have changed by 4.8% compared to the peer median of 7.9%), implying that the company has less control over its costs relative to its peers. MMM-US is currently converting every 1% of change in revenue into 0.4% change in annual reported earnings.
MMM-US?s return on assets is above its peer median both in the current period (13.2% vs. peer median 7.1%) and also over the past five years (14.4% vs. peer median 7.5%). This performance suggests that the company?s relatively high operating returns are sustainable.
The company?s gross margin of 50.8% is around peer median suggesting that MMM-US?s operations do not benefit from any differentiating pricing advantage. However, MMM-US?s pre-tax margin is more than the peer median (21.2% compared to 15.2%) suggesting relatively tight control on operating costs.
Growth & Investment Strategy
While MMM-US?s revenues have grown faster than the peer median (5.4% vs. 0.7% respectively for the past three years), the market gives the stock an about peer median PE ratio of 14.8. This suggests that the market has some questions about the company?s long-term strategy.
MMM-US?s annualized rate of change in capital of 7.5% over the past three years is around the same as its peer median of 7.3%. This investment has generated a better than peer median return on capital of 19.7% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.
Earnings Quality
MMM-US has reported relatively strong net income margin for the last twelve months (14.9% vs. peer median of 10.9%). This margin performance combined with relatively low accruals (3.0% vs. peer median of 7.4%) suggests possible aggressive accounting and an overstatement of its reported net income.
MMM-US?s accruals over the last twelve months are positive suggesting a buildup of reserves. But this level of accruals is less than the peer median ? which suggests that while the company is building reserves, it is doing so in a relatively modest manner compared to its peers.
Trend Charts
Company Profile
3M Co. is a diversified technology company serving customers and communities with innovative products and services. The company operates its business through the following segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications. Products in Industrial and Transportation segment include tapes, a wide variety of coated and non-woven abrasives, adhesives, specialty materials, filtration products, energy control products, closure systems for personal hygiene products, acoustic systems products, and components and products that are used in the manufacture, repair and maintenance of automotive, marine, aircraft and specialty vehicles. The Industrial and Transportation segment serves a broad range of markets, such as automotive original equipment manufacturer and automotive aftermarket, renewable energy, electronics, paper and packaging, food and beverage, and appliance. Products and services in Health Care segment provided to the markets include medical and surgical supplies, skin health and infection prevention products, inhalation and transdermal drug delivery systems, dental and orthodontic products, health information systems, and food safety products. The Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, and health information systems. Products in Consumer and Office segment include office supply products, stationery products, construction and home improvement products, home care products, protective material products, certain consumer retail personal safety products, and consumer health care products. The Consumer and Office segment serves markets that include consumer retail, office retail, home improvement, building maintenance and other markets. Product offerings in Safety, Security and Protection Services segment include personal protection products, cleaning and protection products for commercial establishments, safety and security products, roofing granules for asphalt shingles, corrosion protection products used in the oil and gas pipeline markets, and track and trace solutions. The Safety, Security and Protection Services segment serves a broad range of markets that increase the safety, security and productivity of workers, facilities and systems. The Display and Graphics segment includes optical film solutions for LCD electronic displays; computer screen filters; reflective sheeting for transportation safety; commercial graphics sheeting and systems; architectural surface and lighting solutions; and mobile interactive solutions, including mobile display technology, visual systems products, and computer privacy filters. The Display and Graphics segment serves markets that include electronic display, traffic safety and commercial graphics. Products in Electro and Communications segment include electronic and interconnect solutions, microinterconnect systems, high-performance fluids, high-temperature and display tapes, telecommunications products, electrical products, and touch screens and touch monitors. The Electro and Communications segment serves the electrical, electronics and communications industries, including electrical utilities; electrical construction, maintenance and repair; original equipment manufacturer electrical and electronics; computers and peripherals; consumer electronics; telecommunications central office, outside plant and enterprise; as well as aerospace, military, automotive and medical markets; with products that enable the efficient transmission of electrical power and speed the delivery of information. The company was founded by Henry S. Bryan, Hermon W. Cable, John Dwan, William A. McGonagle and J. Danley Budd in 1902 and is headquartered in St. Paul, MN.
Disclaimer
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This article was originally written by abha.dawesar, and posted on CapitalCube.This entry is filed under Stock Analysis. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
Source: http://www.insidermonkey.com/blog/earnings-analysis-3m-co-nysemmm-25479/
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