3M: Strengths, Weaknesses, Opportunities, Threats
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. Fresh off a decent third quarter earnings report, which resulted in the stock tumbling substantially the next day, I would like to focus on an industrial giant 3M (NYSE: MMM).
- Established and Diversified Nature: The company is valued at $61.45 billion on the market, operates in six business segments (security and protection services, display and graphics, communications, health care, consumer and office supplies, and industrial and transportation), and has a presence in over 60 countries; thus the company is well established and diversified, and has proven it can weather an economic storm
- Dividend: 3M currently pays out quarterly dividends of $0.59, which when annualized puts the dividend yield at 2.66%, which is well north of any rate that can be found in a CD or treasury bond
- Solid Revenue Growth: In 2006, 3M reported revenue of $22.923 billion; in 2011, the company reported revenue of $29.611 billion, representing year over year annual growth of 5.25%, a stable and sustainable rate that is projected to continue into the future
- Institutional Vote of Confidence: 68% of shares outstanding are held by institutional investors, displaying the confidence long-term and big-money investors have in the company and its future
- Debt: The company currently possesses around $4.484 billion in debt on its balance sheets, or 7.21% of its total market capitalization, and until it pays down this debt it will weigh heavily on its core business
- Saturation of Market: The company is already in nearly all of its potential markets, so there is not much room left for expansion
- Cyclical Nature: Many of the company’s products are consumed in greater quantities in times of economic prosperity, and because 3M is not recession-proof, it suffers it times of downfall
- Pricy Valuation: 3M carries a price to book ratio of 4.00, and when growth is taken into account, this makes 3M appear fairly overvalued
- Acquisitions: In September, 3M acquired the Federal Signal Technologies Group from the Federal Signal Company, and further acquisitions in the future are a strong possibility
- Product Innovation: 3M is famous for its innovative and revolutionary nature, and is constantly investing in research and development to create the next blockbuster product
- Selling Brands to Other Companies: 3M has in its past sold its brands to other companies to raise cash that it can use to reinvest back into its own business, or pay down its debt, and this a possibility going into the future
- Acceleration in Global Market Growth: The current global market conditions are less than ideal; the United States is on the brink of a recession, Europe is already in a recession, and China is slowing at a troubling pace; and when the global market recovers 3M will be primed to take advantage and prosper
- Dividend Growth: The company has for decades been paying out dividends and raising payouts, from a quarterly dividend of $0.1825 in 1990, to $0.59 today, and there is a strong possibility this streak will extend into the future
- Competition: Most of the product 3M offers have competitors, and competition to provide the customer with the best product for the least amount of money can lead to margin contraction
- Vulnerability to Rising Material Costs: While 3M hedges many of their commodity costs, they are still relatively vulnerable to rising input costs, which could lead to a contraction in margins
- Economic Downfall: 3M is a very cyclical company, and in times of poor macroeconomic health the company suffers alongside the wide majority of the stocks on the market
Major publicly-traded competitors of 3M include General Electric (NYSE: GE) and Danaher Corporation (NYSE: DHR). General Electric is also a widely diversified company, and is valued at over $200 billion on the market. GE offers many products similar or identical to 3M and also pays out a decently sized dividend. Danaher is also spread across several industries and pays out a small dividend.
The Foolish Bottom Line:
3M possesses several strengths, weaknesses, opportunities, and threats; however, in the end it appears to be a financially strong company with a stable and predictable future. 3M operates in several different industries and pays out a decently sized dividend. 3M is a global industrial staple, and a great addition to any long-term portfolio.
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makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric Company. Motley Fool newsletter services recommend 3M Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.