3M (MMM) has done well since the beginning of the year, rising about 10% in value; presently it looks like it has found its peak. But I believe this year will be a good year for 3M because as we see the good fourth quarter the company had, it confirms what economic indicators and employment numbers have been telling us - the economy is slowly mending itself. Let's look at how the economic bellwether did and how it continues to be innovative in its marketing.
The fourth quarter was good for 3M as it increased its revenue by 4.2% and net income rose 3.9% to $1.41 per share. The company beat revenue estimates and tied EPS.
Despite a slowdown in some parts of the business, strong profits from office products (3M is well known for its Post-it notes) helped the company beat consensus estimates. There were three main areas where profits grew: Consumer office, Display & Graphics, and Health Care. The other divisions, industrial products and construction materials, did not sell as well.
Organic local-currency growth was:
- 8.7 percent in Consumer and Office;
- 8.3 percent in Display and Graphics;
- 5.9 percent in Health Care;
- 3.9 percent in Industrial and Transportation;
- 1.8 percent in Electro and Communications;
- Safety, Security and Protection Services saw sales drop 1.7 percent.
Its growth in the office products division was no fluke. Another competitor in that arena, Avery Dennison Corp. also saw profits grow. (3M showed interest in buying the company's office division last fall but nevrer went through with a bid). When businesses are buying office products, it is a good sign of an expanding economy. It means businesses are active and growing.
3M reaffirmed expectations for fiscal 2013, seeing EPS of $6.70 to $6.95 and organic local-currency sales rising two percent to five percent. The consensus is at $6.85.
Is the Company a Good Value Buy?
When I look at the company from a value investing standpoint, it tends to gravitate toward the expensive end of the spectrum when compared to other companies that investors look at while researching 3M. Here are some examples of how those companies are trading times earnings:
- 3M is trading at 100.55 or 16x earnings.
- United Technologies (UTX) is trading at 15x earnings.
- Caterpillar (CAT) is trading at 10x earnings.
- DuPont (DD) is trading at 12x earnings.
- Johnson & Johnson (JNJ) is trading at 16x earnings.
Looking into the future, I do not see a lot of value growth as I anticipate the value growing to about 108.65 with an present intrinsic value of 65.45. (calculated using the EPS Growth method of valuation). This is not really inspiring, as the stock looks overvalued, but the economy of scale with global growth on the verge of taking off makes the stock an intriguing choice nonetheless. One of the things that will keep the stock moving forward will be its innovative approach to marketing.
Customization Marketing the Post-it Brand
The company does offer a modest dividend of 2.4% (Yahoo Finance) but what really impresses me is 3M's ability to adapt to new marketing ideas to continue to move products. To show an example of what I am talking about, there is a new trend in marketing called "customization." This idea is centered on empowering customers to customize products and enjoy truly unique customization experiences. 3M has put together a $10 million campaign ad (created by "Grey New York") for its Post-it notes.
The campaign is designed to present Post-its as a sign of self expression and moves away from the traditional marketing approach where the "marketer" offers the consumer ideas for using the product. This time, consumers are going to share how they use Post-its. The theme for the campaign is called "Go Ahead" and encourages consumers to share their unconventional ways of using the Post-its. It is a part of an overall strategy by the company to re-ignite this part of the consumer & office division and brand in particular.
I believe 3M to be a strong global conglomerate with a respectable and reliable dividend that should have a good 2013. The company may be a bit pricey right now, but it is definitely a company worth doing further research on. As the global economy continues to improve I would expect 3M to continue to grow also.