3M: Impressive Product Portfolio And Diversification But Look Elsewhere For Upside Potential

May. 7.12 | About: 3M Company (MMM)

3M (NYSE:MMM) is one of the biggest companies around with a market cap of over $61 billion. The company's products span from the industrial to transportation to healthcare sectors. It has the diversity that many investors seek in their investments and product portfolio that consists of numerous products that have proven stability in all economic cycles. Now, however, the stock is about fairly valued as all of the metrics suggest that the stock is fairly valued. Below is an in depth look at the valuation metrics and stock chart.

Valuation: 3M's trailing 5 year valuation metrics suggest that the stock is fairly valued as all of the metrics are close to their respective 5 year averages. 3M's current P/B ratio is 3.7 and it has averaged 4.2 over the past 5 years with a high of 6.1 and low of 2.9. 3M's current P/S ratio is 2.1 and it has averaged 2.2 over the past 5 years with a high of 2.8 and low of 1.4. 3M's current P/E ratio is 14.6 and it has averaged 14.8 over the past 5 years with a high of 18.5 and low of 11.7.

Price Target: The consensus price target for the analysts who follow 3M is $96. That is upside of 8% from today's stock price of $88.67 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current price.

Forward Valuation: 3M is currently trading at about $89 a share with analysts expecting EPS of $7.02 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 12.6. Taking a look at other publicly traded conglomerates will give us a better idea of the stock's relative valuation. United Technologies (NYSE:UTX) is currently trading at about $79 a share with analysts expecting EPS of $6.73 next year, an earnings increase of 22% y/y, for a forward P/E ratio of 11.8. Danaher (NYSE:DHR) is currently trading at about $54 a share with analysts expecting EPS of $3.71 next year, an earnings increase of 12% y/y, for a forward P/E ratio of 14.4. Illinois Tool Works (NYSE:ITW) is currently trading at about $56 a share with analysts expecting EPS of $4.71 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 12. The mean forward P/E of 3M's competitors is 12.7 which suggests that 3M is fairly valued relative to its publicly traded competitors.

Earnings Estimates: 3M has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between -9 cents and 14 cents from consensus estimates or about -5.6% to 9.4% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.

Price Action: 3M is down 7.6% over the past year, underperforming the S&P 500, which is up 4.7%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $87.98 and above its 200 day moving average, which sits at $82.40.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.