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