The Sell-Side Hates 3M. We Don't.
We're reducing our fair value estimate on the wide-moat firm.
After reviewing the impact to 3M’s (MMM) segments during the Great Recession, we reduce our fair value estimate to $170 per share from $186 per share previously (about an 8.5% reduction). The reduction in fair value is materially less than what we saw during the financial crisis given the surge in demand from 3M’s N95 respirators, which add about $7 per share to our valuation (otherwise the reduction would have been similar to the approximately 12.5% cut we implemented at the end of 2008).
We think the production of 3M’s respirators are a decent catalyst in the stock that the market fails to appreciate. While we confess our visibility is low, we assume 3M sells each respirator on average at a price of about 70 cents (with no additional price inuring from COVID-19 related sales), and further assume a gradual ramp to a production rate of 2 billion units from 1.1 billion previously (which is an annual figure, which we then divide by 12 to get the monthly figure). We then deduct the sales benefit from 3M’s prior production rate (about half of the current 1.1 billion), and we estimate 3M will see an additional sales windfall of about $700 million in 2020.
We’d also expect to see some modest benefit to cleaning solutions, including scrubbers and wipes frequently used on kitchen and bathroom surfaces (mostly sold through 3M’s Scotch-Brite brand). While we expect 3M will no longer “return to growth” as was its intent at the beginning of year when it issued guidance, we’re only modeling a 0.3% decline to its top line. In other words, the benefit from recent acquisitions in M*Modal and Acelity, as well as these newer tailwinds won’t be enough to offset the weak macro environment and 3M’s China exposure (APAC is about 31% of sales; China about 10% of total sales).
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Joshua Aguilar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.