Stock Analysis on Net
Stock Analysis on Net

3M Co. (NYSE:MMM)

This company has been moved to the archive! The financial data has not been updated since October 25, 2022.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

3M Co., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 10.86%
01 FCFF0 6,239
1 FCFF1 6,669 = 6,239 × (1 + 6.89%) 6,016
2 FCFF2 7,067 = 6,669 × (1 + 5.98%) 5,751
3 FCFF3 7,425 = 7,067 × (1 + 5.06%) 5,450
4 FCFF4 7,733 = 7,425 × (1 + 4.15%) 5,120
5 FCFF5 7,984 = 7,733 × (1 + 3.24%) 4,768
5 Terminal value (TV5) 108,139 = 7,984 × (1 + 3.24%) ÷ (10.86% – 3.24%) 64,586
Intrinsic value of 3M Co. capital 91,691
Less: Debt and finance lease liabilities (fair value) 19,008
Intrinsic value of 3M Co. common stock 72,683
 
Intrinsic value of 3M Co. common stock (per share) $131.50
Current share price $118.50

Based on: 10-K (reporting date: 2021-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

3M Co., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 65,500 0.78 13.39%
Debt and finance lease liabilities (fair value) 19,008 0.22 2.14% = 2.70% × (1 – 20.70%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 552,742,915 × $118.50
= $65,500,035,427.50

   Debt and finance lease liabilities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (17.80% + 19.60% + 19.80% + 20.90% + 25.40%) ÷ 5
= 20.70%

WACC = 10.86%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

3M Co., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Interest expense 488 529 448 350 322
Net income attributable to 3M 5,921 5,384 4,570 5,349 4,858
 
Effective income tax rate (EITR)1 17.80% 19.60% 19.80% 20.90% 25.40%
 
Interest expense, after tax2 401 425 359 277 240
Add: Dividends declared 3,420 3,388 3,316 3,193 2,803
Interest expense (after tax) and dividends 3,821 3,813 3,675 3,470 3,043
 
EBIT(1 – EITR)3 6,322 5,809 4,929 5,626 5,098
 
Short-term borrowings and current portion of long-term debt 1,307 806 2,795 1,211 1,853
Current obligations of finance leases 7 22 21 17 13
Long-term debt, excluding current portion 16,056 17,989 17,518 13,411 12,096
Finance leases, net of current obligations 93 93 111 75 60
Total 3M Company shareholders’ equity 15,046 12,867 10,063 9,796 11,563
Total capital 32,509 31,777 30,508 24,510 25,585
Financial Ratios
Retention rate (RR)4 0.40 0.34 0.25 0.38 0.40
Return on invested capital (ROIC)5 19.45% 18.28% 16.16% 22.95% 19.93%
Averages
RR 0.36
ROIC 19.35%
 
FCFF growth rate (g)6 6.89%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 488 × (1 – 17.80%)
= 401

3 EBIT(1 – EITR) = Net income attributable to 3M + Interest expense, after tax
= 5,921 + 401
= 6,322

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [6,322 – 3,821] ÷ 6,322
= 0.40

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 6,322 ÷ 32,509
= 19.45%

6 g = RR × ROIC
= 0.36 × 19.35%
= 6.89%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (84,508 × 10.86% – 6,239) ÷ (84,508 + 6,239)
= 3.24%

where:

Total capital, fair value0 = current fair value of 3M Co. debt and equity (US$ in millions)
FCFF0 = the last year 3M Co. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of 3M Co. capital

FCFF growth rate (g) forecast

3M Co., H-model

Microsoft Excel
Year Value gt
1 g1 6.89%
2 g2 5.98%
3 g3 5.06%
4 g4 4.15%
5 and thereafter g5 3.24%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.89% + (3.24% – 6.89%) × (2 – 1) ÷ (5 – 1)
= 5.98%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.89% + (3.24% – 6.89%) × (3 – 1) ÷ (5 – 1)
= 5.06%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.89% + (3.24% – 6.89%) × (4 – 1) ÷ (5 – 1)
= 4.15%