3M doesn't seem to realize we are in a recession

[Hamlet]

Their earnings looked pretty good to me.

They have a PE of 11.

This seem like one that people are going to wonder why they let it get this cheap 5 years from now.

[al_bundy]

10% EPS growth ex-items, why exactly is a 11 PE so low for this?

and the guidance isn't that good either. everybody is reporting good earnings growth this quarter, but the guidance is usually pretty bad. reminds me of the fall of 2000.

[Hamlet]

If earnings were constant (I understand that they are not), a PE of 11 implies a return going forward of about 9%, with no growth at all. Add a little growth, and you start seeing some real nice returns.

The difference between now and 2000 is valuation. Most big, solid companies were vastly more expensive on a PE basis in 2000. WMT and HD were at something like 40 times earnings. Now they are reasonably priced.

Yes, the next year is going to be sub-par. What do you think 2013 will look like?

I suspect that 3M will be making more money in 2013 than they are today.

Quote:

Originally Posted by al_bundy 10% EPS growth ex-items, why exactly is a 11 PE so low for this? and the guidance isn't that good either. everybody is reporting good earnings growth this quarter, but the guidance is usually pretty bad. reminds me of the fall of 2000.

[al_bundy]

stocks are looking to be priced for 2009 and possibly 2010 earnings now. 2008 is OK with the 4th quarter will probably be not too good. 2009 isn't looking so well and 2010 is hope and dreams right now.

most times unemployment lags a recovery and will increase into a recovering economy so 3M will probably not grow until well into the next recovery and will probably be cheaper in a year. actually it wouldn't surprise me if you can buy it under $50 in a week or three

[Hamlet]

You could be right about that. My point is that the current price will be very likely to give me a very good return sometime down the road.

You think its 2000, but the market has already fallen 40%. I think it's 2002.

If you wait for forward earnings to look good, you will be paying a much higher price than I am today.

Quote:

Originally Posted by al_bundy stocks are looking to be priced for 2009 and possibly 2010 earnings now. 2008 is OK with the 4th quarter will probably be not too good. 2009 isn't looking so well and 2010 is hope and dreams right now. most times unemployment lags a recovery and will increase into a recovering economy so 3M will probably not grow until well into the next recovery and will probably be cheaper in a year. actually it wouldn't surprise me if you can buy it under $50 in a week or three

[al_bundy]

the expectation was that 3M would make $5.45 a share in 2008. At $60 a share that's around a PE of 11. Now 3M is saying it's $5.40 to $5.44 so at $5.40 and 11 PE the price is around $59 and change.

for 2009 yahoo says the expectation is $5.64. this will probably come down so depending on the growth rate the stock has to find a price in the near term. For 2010 and later it will depend on the economy but with rising unemployment, cost cutting and bankrupticies i don't see 3M selling a lot of Post-It Notes

on a chart/technical analysis it's probably going to $40 just because stocks get oversold in a bear market

[terminator]

Quote:

Originally Posted by al_bundy For 2010 and later it will depend on the economy but with rising unemployment, cost cutting and bankrupticies i don't see 3M selling a lot of Post-It Notes

Office & Consumer is about 14% of 3M's sales.

[al_bundy]

whatever they sell their guidance is that sales growth will slow and they may decide to deleverage from relying so much on the CP market which will slow growth even more.

and if you look at 10 years of price data you'll see a pop from the 2002 lows and then down until 2006. you'll see the same thing after this bear ends because 3M is a large industrial company and will go up later in the business cycle. just as they have in previous business cycles. nothing with earnings, but the way things work. the cycle starts with tech and ends with big industrial companies and commodities

[terminator]

Quote:

Originally Posted by al_bundy whatever they sell their guidance is that sales growth will slow and they may decide to deleverage from relying so much on the CP market which will slow growth even more.

They have $6B in debt. $4B is long-term. Current assets > current iabilities by about $3.5B. Sitting on $2B in cash. Earns about $4B per year. Leverage and CP is not an issue for them.

I'm not excited about 3M (i.e. it's one of my smaller investments), but it's rock solid because it's so diverse and the management has always been fiscally conservative. For the last ten years, the average annual P/E was 23. Today it's about 11 with a 3.3% yield. I don't think we'll see it north of 20x again anytime soon, but more importantly over the last ten years earnings have grown at a 11% clip and the dividend at a more conservative 6.5% rate. Great track record, great businesses and they are well-positioned for decent future returns IMHO, albeit not flashy or exciting.

[al_bundy]

the short term debt is CP paper that the Federal Reserve is buying so 3M and other AAA companies don't have to declare BK. they can't pay it all off since that would eat up all their cash and they need it for working capital. and they have to roll it over every 3-12 months and find new buyers for it.

the reason earnings have grown so fast is that they were able to finance the growth with short term paper at historically low rates. with the current credit crisis the management would be idiots not to be working on a plan to slow growth and to rely less on the CP markets for working capital.