Barron’s article on MMM Stock outlook and Corequity valuation

Barron’s published a bullish article on MMM ($90) this weekend providing us with an opportunity to see whether the favorable outlook presented is discounted in the stock price.

http://online.barrons.com/article/SB50001424052970204395804576162513319109354.html?mod=BOL_twm_ls#articleTabs_panel_article%3D1

Our valuation research substantiates that MMM stock is undervalued which also fits with our recent study of the current valuation of Big Caps vs Small caps.

Given that MMM's earnings are cyclical to a degree, we normalize them using the RoE  series of earnings and estimated earnings as shown here.

In this case, we get normalized earnings of $6.99 for 2012.  As this RoE level is substantially lower than the company achieved in the last cycle, it may represent a conservative assumption. Despite this, we have a stock that is undervalued by over 40% as indicated below.

This valuation forecast is based on an assumed return to the normal level of relative valuation which in this case is a premium of 20% to the S&P 500.

If we forecast a return to the RoE levels of 2006, we get normalized earnings of $8.19..

Under this assumption MMM is substantially more undervalued.

RLC