VALUATION HIGHLIGHTS

1. Safety & Industrial constitutes 49% of the Trefis price estimate for 3M's stock.
2. Transport & Electronics constitute 29% of the Trefis price estimate for 3M's stock.
3. Consumer constitutes 22% of the Trefis price estimate for 3M's stock.

WHAT HAS CHANGED?

1. Solventum Spin-off

3M on April 1, 2024, completed the planned spin-off of its health care business, which is now an independent company — Solventum – and is listed on the NYSE as SOLV. 3M now has three segments – Safety & Industrial, Transportation & Electronics, and Consumer.

2. MMM Stock vs. S&P 500 Performance
   • The changes in MMM stock over the recent years have been far from consistent. Returns for the stock were 5% in 2021, -30% in 2022, -3% in 2023, and 46% in 2024.
   • In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that MMM underperformed the S&P in 2021, 2022 and 2023.

3. Q4 2024 Earnings
   • 3M reported a 0.1% revenue growth to $6.0 billion in Q4, 2024. Transportation and Electronics segment sales were down 4.5%, Safety & Industrial revenue was up 1.6%, and the Consumer segment saw a 0.2% decline in sales. Looking at 3M's bottom line, the adjusted EPS of $1.68 was down 2% y-o-y.

4. Restructuring
   • 3M has undergone a significant transformation of its business operations, resulting in a streamlined focus on three core areas: Safety & Industrial, Transportation & Electronics, and Consumer products. This restructuring involved the successful spin-off of its food safety business, which merged with Neogen in September 2022, and the separation of its healthcare division in 2024.

5. Litigation
   • 3M is currently involved in significant litigation concerning its Combat Arms earplugs, with claims alleging that these earplugs caused hearing damage for over 230,000 veterans.
   • Initially, 3M attempted to resolve these claims through the bankruptcy of its subsidiary, Aearo Technologies, the original manufacturer of the earplugs. However, a bankruptcy court rejected 3M's efforts to halt lawsuits against the parent company.
   • In 2023, 3M incurred approximately $15 billion in expenses related to settlements for both the earplug litigation and claims concerning PFAS (“forever chemicals”) contamination.
   • Notably, 3M reached a $6.01 billion settlement in August 2023 to address the earplug lawsuits, with over 99% of claimants opting into this agreement as of March 2024. Payments to claimants are expected to continue through 2029.
   • Additionally, 3M reached a preliminary settlement potentially worth $10.3 billion in June 2023 regarding PFAS contamination, which received final court approval in March 2024, with payments extending until 2036.
   • While 3M's appeal regarding the bankruptcy court's decision on the earplug cases is pending, the vast majority of earplug claims are being addressed through the settlement agreement.

6. Acelity Acquisition
   • In 2019, 3M significantly expanded its healthcare portfolio with the acquisition of Acelity for a total enterprise value of $6.7 billion, funded through debt and available cash. Acelity, a medical technology company specializing in advanced wound care and specialty surgical applications under the Kinetic Concepts (KCI) and Systagenix brands, was integrated into 3M's Medical Solutions business within its Health Care segment. This acquisition marked a substantial investment in 3M's healthcare division.

     Building on this, in April 2022, 3M acquired the technology assets of LeanTec, a company providing digital inventory management solutions for the automotive aftermarket in the US and Canada. This acquisition aimed to enhance 3M's “connected bodyshop” platform within its Transportation & Electronics segment.

     These acquisitions demonstrate 3M's ongoing strategy to strategically enhance its business and expand its capabilities in key areas through targeted investments. While the Acelity acquisition represents a major expansion in healthcare, the LeanTec acquisition highlights 3M's focus on incorporating digital solutions within its existing business segments.

   • Over the past decade, 3M has streamlined its operations, moving from six sectors to three business groups. This strategic shift has focused the company, enhancing customer relevance, productivity, and speed through a leaner operating structure.

7. China Remains a Significant Growth Market
   • 3M established a presence in China in 1984, becoming one of the first wholly owned foreign enterprises outside the Shenzhen economic zone. While the company has experienced growth in the region, reaching around $3 billion in sales, it acknowledges navigating headwinds, particularly in recent years. Nevertheless, 3M continues to view China as an important market with long-term growth potential.
   • 3M has built a strong foundation in China through its involvement in infrastructure and manufacturing. Growth in its safety and retail businesses in China has further bolstered its position.

BUSINESS SUMMARY

3M is a diversified technology company with a global presence, now primarily focused on three core business segments following recent restructuring: Safety & Industrial, Transportation & Electronics, and Consumer. 3M holds leading positions in many of the markets it serves, leveraging its expertise in product development, manufacturing, and marketing. The company faces competition from other technologically advanced companies across its various product lines. Some of 3M's most recognizable brands include Scotch Tape products, Post-it Notes, ACE bandages, and Thinsulate insulation products.

3M is recognized for its innovation, with a significant portion of its sales derived from products launched within the last five years. The company's global footprint remains a key strength, with a substantial portion of its sales originating from international markets.

SOURCES OF VALUE

We estimate the value contribution of 3M's business segments as follows: Safety & Industrial (around 50%), Transportation & Electronics (around 26%), and Consumer (around 24%). Several factors are expected to drive the company's value moving forward.

1. Consistent Innovation and Strategic Acquisitions Drive Market Position
   • 3M's strong commitment to Research and Development (R&D) continues to yield innovative and differentiated products. The company's focus on high-growth areas, such as renewable energy and bioplastics, is expected to help maintain its market share amidst increasing global competition. 3M is also positioned to benefit from continued demand in the automotive, aerospace, and industrial sectors for adhesives and tapes, particularly driven by growth in the Asia-Pacific region. Strategic acquisitions, such as Acelity in 2019 (healthcare) and LeanTec in 2022 (automotive aftermarket technology), further enhance 3M's capabilities and market reach.

KEY TRENDS

1. Economic Fluctuations and Geopolitical Factors
   • The global economy has experienced periods of slowdown and volatility in recent years. While 3M demonstrated resilience in 2020, driven by demand for personal safety products (like masks and PPE), home improvement, and healthcare solutions, the high inflation environment, rising interest rates, and geopolitical events, such as the Russia-Ukraine war, have presented challenges to its business in subsequent years.

2. Growth in Emerging Markets
   • Emerging economies, particularly India and China, are anticipated to be significant drivers of growth for many of 3M's markets in the near to medium term. As the middle class expands and disposable income rises in these regions, demand for consumer goods and household products is expected to increase substantially. Furthermore, rapid industrialization will fuel demand for office supplies and specialty chemicals. The increasing accessibility of healthcare in these countries is also projected to drive rapid growth in the medical device markets.

3. Evolving Product Lifecycles
   • In certain rapidly evolving markets where 3M competes, especially technology and healthcare, product lifecycles are becoming increasingly shorter. While this trend favors innovative companies like 3M, it also necessitates sustained and potentially increased investment in R&D to maintain a competitive edge.

4. Currency Exchange Rate Volatility
   • 3M's global operations expose it to fluctuations in currency exchange rates. Significant strengthening or weakening of the U.S. dollar against other major currencies can impact the company's reported earnings.