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3M Company cash flow valuation

|Includes: 3M Company (MMM)

Current Price: ~ $91/share


I believe $3M ($MMM) is fairly valued at $83/share on a cash flow valuation basis.    


Based in St. Paul, Minn., 3M manufactures a diversified array of industrial products. Known especially for popular consumer products such as Scotch Tape and Post-It Notes, the company's portfolio also offers liquid crystal display films, health-care technology, heavy-duty adhesives, and more than 40 other technology platforms. 3M is an S&P 500 component and a part of the Dow Jones Industrial Average.


I estimated the firm's WACC today at 10.50% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
Year
FCF $Millions
2001
2098
2002
2229
2003
3096
2004
3345
2005
3315
2006
2671
2007
2853
2008
3062
2009
4038
2010
4083

Average Annual Growth FCF: approx. 9%
CAGR FCF: approx. 8%
Consensus Forecast Industry 5-Year Growth: approx. 15% per year
Consensus Forecast Company 5-Year Growth: approx. 11% per year
 
Assuming the company achieves a 5-year growth rate in FCF of 11% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
4083
1
4532
2
5031
3
5584
4
6198
5
6880
Terminal Value
72754

The firm's future cash flows, discounted at a WACC of 10.50%, give a present value for the entire firm (Debt + Equity) of $64,863 million. If the firm's fair value of debt is estimated at $5735 million, then the fair value of the firm's equity could be $59,128 million.  $59,128 million / 712 million outstanding shares is approximately $83 per share and a 20% margin of safety is $66/share.
 
Sources
3M.com
 
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.