3M Morningstar Outlook 2019

Morningstar Equity Analyst Report | Report as of 05 Jul 2019 11:45, UTC | Page 1 of 15
3M Co MMM (XNYS)
Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship
QQQQ 172.00 USD 187.00 USD 0.92 3.20 3.35 99.15 Diversified Industrials Exemplary
05 Jul 2019 05 Jul 2019 31 May 2019 05 Jul 2019 05 Jul 2019 05 Jul 2019
21:38, UTC 19:33, UTC
Morningstar Pillars Analyst Quantitative Important Disclosure:

Economic Moat Wide Wide The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of Conduct Policy, Personal Security Trading Policy (or an equivalent of),
Valuation QQQQ Fairly Valued and Investment Research Policy. For information regarding conflicts of interest, please visit http://global.morningstar.com/equitydisclosures
Uncertainty Low Medium
Financial Health — Moderate We Slightly Lower Our FVE for 3M After Evaluating the Firm’s PFAS
Source: Morningstar Equity Research
Exposure
Quantitative Valuation
MMM Business Strategy and Outlook other initiatives.
pUSA
Joshua Aguilar, Eq. Analyst, 03 May 2019
Undervalued Fairly Valued Overvalued We think of 3M as a GDP-plus business. In 3M’s case, the Analyst Note
"plus" is a testament to the value-additive nature of the Joshua Aguilar, Eq. Analyst, 31 May 2019
Current 5-Yr Avg Sector Country
Price/Quant Fair Value 0.99 1.04 0.80 0.83
company's products, churned out by its virtually inimitable After taking a closer look at 3M’s PFAS exposure, we
Price/Earnings 18.6 23.1 16.8 20.1 research and development platform. Unlike many slightly lower our fair value estimate to $187 from $190.
Forward P/E 18.0 — 13.9 13.9 diversified industrials companies, 3M has committed to The firm’s reserve for PFAS liability currently totals $235
Price/Cash Flow 14.2 17.9 11.2 13.1 leveraging innovation across its disparate businesses, million, which it took in the first quarter of 2019.
Price/Free Cash Flow 18.4 23.5 18.4 19.5
Trailing Dividend Yield% 3.20 2.43 2.30 2.35
making it worth more than the sum of its parts. This Importantly, however, that reserve was solely for
Source: Morningstar commitment manifests itself in the apportionment of just manufacturing liability that 3M faced directly in some of
under 6% of net sales to R&D, which we expect to increase its facilities; specifically, three sites in the United States
Bulls Say toward 6% by 2023. We forecast the firm will earn just and two in Europe. The reserve does not include 3M’s
O3M continues to emphasize innovation, with R&D under $9 in gross profit for every dollar spent on R&D. Our product liability exposure, which we estimate will be much
spending as a percentage of net sales totaling nearly forecast is relatively in line with recent experience, which greater and which the reserve does not adequately
6%. historically has been significantly greater than other address.
OThe firm continues to benefit from its shared highly innovative firms.
technology platforms, with developed products often In our view, 3M’s exposure on the products side is about
having multiple use applications. 3M also benefits from positioning its portfolio toward $3.4 billion in our base scenario. This effect brought down
O3M is likely to profit from segments and geography faster-growing portions of GDP, both in terms of industry our fair value estimate by $4, offset by a $1 boost from
exposed to faster-growing portions of global GDP, as well as geography. We think the healthcare segment the time value of money. In a bull case, this number falls
which should allow it to easily earn its goal of 1.5 will gradually take a more pivotal role in contributing to to $1.8 billion, and in a bear case rises to $7.8 billion. We
times the growth of the Industrial Production Index. the firm’s revenue and operating income mix, particularly also amortize this obligation over the course of our explicit
as the economies that 3M is geographically exposed to forecast (less the final year, which would calculate the
mature. We see this segment rising to a larger portion of value in perpetuity). We adjust these obligations out as
Bears Say
the firm’s re-segmented revenue by the end of our explicit part of our adjusted EPS assumptions. Bottom line, we
OWhile 3M has earned returns that have doubled
forecast. Aside from superior profitability, healthcare believe a lot of the reaction in the stock price is based on
its cost of capital for over 25 years, the firm has
benefits from several secular trends, including an aging irrational fear that the obligation could total tens of billions
struggled to generate fresh organic growth.
population, rising chronic disease and surgical of dollars, which we don’t agree with based on available
OThe firm faces several headwinds, including
procedures, as well as demand for efficient management evidence.
changing customer preferences and an economic
of large volumes of medical data. 3M's acquisition of
slowdown in China.
Acelity, while slightly pricey, should also provide the firm We calculate 3M’s exposure based on information from
O3M will struggle to attract and retain the best and with a stronger footing in the advanced wound care the latest 10-Q filing, first-quarter 2019, including the
brightest scientists and engineers, who naturally market. We also expect outsize growth in 3M's safety number of jurisdictions where litigation is pending, as well
gravitate toward the technology sector. portfolio, driven by the need to replace aging as our estimate of 3M's total responsibility based on the
infrastructure and increased urbanization in the Minnesota settlement. PFAS, which are a family of
developing world. Therefore, we model about a 4% manmade fluorinated organic chemicals, have been used
top-line compound annual growth rate over 2018-23. since the 1950s for stain-repellent Scotchgard, while the
firm also sold its PFAS to other companies to make Teflon
We also see 3M slowly continuing its margin expansion and firefighting foams, among other applications. These
story in tandem with its 2019 restructuring efforts. We are strong molecular bonds that are found in the water
expect these efforts will involve increased sharing of supply and from our understanding, don’t break down in
resources, cutting raw material costs, reducing global nature.
headcount by 2,000 positions, and optimizing the firm’s
massive international manufacturing footprint, among Economic Moat
?
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Morningstar Equity Analyst Report |Page 2 of 15
3M Co MMM (XNYS)
21:38, UTC 19:33, UTC
Close Competitors Currency (Mil) Market Cap TTM Sales Operating Margin TTM/PE household names like Scotch, Scotchgard, Post-it,
Johnson & Johnson JNJ USD 373,221 81,593 22.99 26.04 Scotch-Brite, and ACE bandages. Many of the brands
command premium pricing. For example, a 12-pack of
Avery Dennison Corp AVY USD 10,170 7,123 11.07 56.18
standard yellow Post-it notes typically sells at a 33% price
premium over a comparable generic counterpart. We
believe consumers are willing to pay the extra premium
Joshua Aguilar, Eq. Analyst, 31 May 2019 associated with 3M’s products given their reputation for
We believe 3M has a wide economic moat based on high quality. The overall firm has steadily risen in brand
intangible assets and cost advantage. In the diversified value in recent years, climbing from 90th in Interbrand’s
industrials space, we think that having a central, Top 100 Best Global Brands to 58th in 2017 and ahead of
leverageable core competence is the key to building an well-known brands like Starbucks and Visa. With over
enduring competitive advantage. 3M is an innovative 55,000 products that touch and concern nearly every
powerhouse that maximizes utilization of its R&D platform industry, the firm’s portfolio is not overly dependent on any
across multiple business segments, with byproducts that single product or category, which increases our confidence
include patents, brands, and proprietary technology. in its long-run returns on invested capital.
The firm spends about 6% of its net sales on R&D Additionally, throughout its history, the firm has benefited
compared with the median 5.5% in the Global Innovation from over 112,000 global patents awarded to it. According
1000 and the median 3% for diversified industrial firms. to a search of the U.S. Patent and Trademark Office, 3M
While many firms say they innovate, 3M’s yield on these has been awarded 9,000-plus U.S. patents since 2001. We
investments is quantifiably superior. 3M’s returns on believe 3M’s current patent portfolio exceeds the carrying
research capital in 2017 outpaced each name on 2018's amount of $561 million listed on its balance sheet. While
top 10 Most Innovative Companies as named by Boston GAAP accounting does not permit the writing up of an
Consulting Group. For every dollar spent on R&D in 2016, intangible asset, our belief is anchored in the firm’s proven
3M yielded $8.88 in 2017 gross profit versus a $5.51 and consistent ability to use these assets to generate
average for the top 10. This is the case even as every name excess returns. We further think that the majority
on that list is from the technology sector, and in aggregate, (between 80%) of its more recent U.S. patent portfolio is
according to Statista, the technology sector accounts for from utility patents based on data from the Intellectual
nearly 38% of global R&D spending compared with just Property Owners Association. To qualify for this
over 10% for the entire industrials sector. Over a designation, these inventions must be novel, new, and
three-year cycle, returns on research capital for 3M non-obvious. Given the comparably higher hurdle to obtain
outpaced each firm on the top 10, except for BCG’s them, utility patents offer advantages over design patents
number-one ranked firm, Apple. We think this is a given the intellectual property protection around an
testament to 3M’s business model, which places a invention’s function. They can also protect many different
premium on effective commercialization. The firm variations of a product with a single approved filing. We
receives about 120,000 customer interactions per year, think the complexity of 3M’s disruptive technology reflects
and a majority of its product development caters to the strength of its intangible asset moat source, as is the
specific customer input as opposed to third-party market case with microreplication technology used in road signs,
insights. These customer relationships are difficult-to-replicate grinders, and overhead projectors.
intangible assets cultivated by over a century’s worth of
operations. They have the additional benefit of more 3M’s 46 technology platforms and its manufacturing scale
efficiently eliminating R&D programs that bear little allow it to achieve the lowest unit cost in most of the
probability of commercialization, or in the alternative, categories in which 3M competes. As a result, 3M enjoys
accelerate those that are potentially high impact and have gross margins of 49%-50% of sales versus about 37%
a high probability of success. Also, 15% of the firm’s senior median for comparable peers. The firm’s shared resources
engineers’ time is unbudgeted to work on any new ideas provide for economies of scope, such as in abrasive
and projects independent of their normal responsibilities. technology, which affects industrials, construction, and
home improvement retail, as well as automotive
3M has strong brands with high share of mind, including aftermarket collision repair. The firm’s adhesives can also
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3M Co MMM (XNYS)
21:38, UTC 19:33, UTC
be used in a wide range of applications, from Scotch tape guidance. Our fair value estimate implies about a 20 times
and Post-it notes to Tegaderm medical dressings. price/earnings multiple to our 2019 adjusted EPS
estimate, as well as a 13.5 times enterprise value/EBITDA
3M’s emphasis on regionalizing its supply chain reduces multiple for 2019. At our 5-star price, we believe the stock
complexity in the manufacturing process and allows for offers investors an attractive long-term risk-reward
shorter supply chains, fewer stock-keeping units, and opportunity despite near-term volatiliy.
common processes. This ultimately translates to
diminished demand for working capital and greater capital We believe 3M will increase revenue at about a 4%
efficiency, drives down unit costs, and improves customer compound annual growth rate over 2018-23. We model
experience with fewer back orders. These cost and our top-line assumptions by projecting growth in each of
customer service benefits are amplified with a common the firm’s subsegments. For industrial, 3M’s largest
enterprise resource planning platform, which further segment by net sales, we predominantly see growth
integrates various functions across the supply chain, from coming from abrasives and adhesives, which enjoy
procurement to production. multiple applications throughout the firm. For abrasives,
growth drivers include rapid expansion of international
In addition to the benefits 3M gets from being automotive production, along with robust growth in the
geographically proximate to their customers, the firm also worldwide construction industry. For safety and graphics,
derives economies of scale from managing a supply chain the next-largest segment, we believe most of the business
across a broader geography that is vertically integrated. will benefit from personal safety products, which is a
The firm manufactures many of its own raw materials at business with high brand loyalty. We expect the global
a lower cost than competitors. Moreover, 3M has 200 population to increasingly shift to living in urban areas, as
plants around the world, and these are anchored to sites well as improved standards of living resulting in demand
that are 4-5 times larger than a typical plant. These larger for building renovation projects, which should drive
plants are on average 40%-45% more productive than growth. For healthcare, we think a significant portion of
smaller plants and tend to drive inventory turns that are growth will come from medical consumables, particularly
on average 15% faster. This same phenomenon holds true disposable medical supplies, driven by an increased
for the firm’s distribution centers, which are 20%-25% incidence of chronic diseases and a rise in surgical
faster than smaller local distribution centers. procedures across the globe. For electronics and energy,
we see the group benefiting from increased OLED adoption
By our calculations, during the 10-year period from for smartphones and televisions, as well as an increased
2008-17, 3M achieved incremental returns on tangible need for energy efficiency in electrical components. For
assets of about 49%. For at least the past 25 years, its consumer, we see continued net sales growth of nearly
returns on capital (including goodwill) have more than 4% per year, on average, based on continued innovation
doubled our estimated cost of capital, even during years and additional product assortment.
when the company endured negative sales growth. Even
during its worst year of the past 10 years, 3M still We see slight upticks in margins over the medium term,
managed to earn returns, including goodwill, that cleared driven by lower manufacturing costs and selling, general,
its weighted average cost of capital hurdle by more than and administrative expense as a percentage of net sales
2.5 times. As a result, we have a high degree of confidence based on increased operational efficiency, offset by slight
that 3M will continue to produce excess returns for at increases in R&D expense as a percentage of net sales.
least the next 20 years.
For stage II, we model a return on new invested capital of
Fair Value & Profit Drivers 30% with EBI growth of 4%, which matches our long-term
Joshua Aguilar, Eq. Analyst, 31 May 2019 expectations for nominal global GDP growth.
After reviewing 3M's PFAS exposure (we estimated $3.4
billion), we lower our fair value estimate to $187 from Risk & Uncertainty
$190. Our lowered fair value primarily results from Joshua Aguilar, Eq. Analyst, 31 May 2019
near-term organic top-line headwinds as well as 3M is exposed to several risks. In our view, the most critical
management's materially lowered 2019 full-year risk to the company would come in the form of
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3M Co MMM (XNYS)
21:38, UTC 19:33, UTC
complacency and a pivot away from its commitment to 2018 Investor Day with Roman’s presentation, where he
innovation. We see no signs of this risk coming to fruition, specifically mentioned building on 3M’s success in since
although the firm did decrease R&D spend slightly as a 2012. We like that Roman is focusing 3M’s strategic
percentage of sales in 2018. We think this a short-term priorities toward both the healthcare and the safety and
issue related mostly to the timing of some divestitures, industrial portions of the portfolio. Roman’s capital
but we continue monitoring how the company allocates allocation framework (as of 2018) favors acquisitions,
capital. We still believe management remains deeply which we think will be needed to augment 3M’s organic
committed to 3M’s culture of innovation. growth, provided the target prices are right. One
acquisition we view positively is the acquisition of Scott
Other pivotal risks, we believe, include diminished brand Safety (Roman has overseen the integration) and the
power and changing customer preferences, market business has been gaining business as its combines with
acceptance of new products developing in 3M’s R&D 3M’s leading personal safety portfolio. The acquisition of
pipeline, and the firm’s ability to both find and integrate Acelity, 3M's largest ever, while not optically cheap,
bolt-on acquisitions to supplement organic revenue should improve 3M's position in the advanced wound care
growth (which could affect our revenue assumptions by market, with an opportunity for some additional revenue
plus or minus 1%), as well as slowing growth in China, synergies from the deal that were not modeled.
particularly given 3M’s relatively high exposure to the
Asia-Pacific region relative to peers (at just over 31% of Our reasoning behind 3M’s Exemplary stewardship rating
overall sales). is simple. First, the firm improved its free cash flow
conversion from Thulin’s installation in 2012 from the
The firm has numerous on- and off-balance-sheet mid-80s to 100-plus percent in recent years, even as Thulin
environmental/legal risks that it labels as commitments increased the firm’s R&D spending as a percentage of net
and contingencies. While 3M recently settled an sales during his tenure. While free cash flow ebbed in
environmental suit earlier this year in its home state of 2018, we’re not overly concerned, and expect a bounce
Minnesota and there is a risk of a contagion of similar back heading into next year--we expect FCF conversion
suits in other states, we think this risk is relatively should equal to about 100% on average going forwards
immaterial over the long run. (plus or minus 5% year to year). Second, and more
important, management under Thulin demonstrated a
Stewardship committed shareholder orientation, increasing the firm’s
Joshua Aguilar, Eq. Analyst, 31 May 2019 payout ratio from 38% at the beginning of his tenure to
We assign management an Exemplary stewardship 59% when he left. Under Roman, 3M has continued paying
rating. Michael Roman became CEO on July 1, taking over a generous dividend payout ratio of 61% to o 2018 GAAP
from the well-regarded Inge Thulin. He has been with 3M earnings. That is at the top end of the range from
for over 30 years. In his capacity as chief operating officer multi-industrial peers, which typically pay out 35%-60%.
and executive vice president, Roman had purview over We appreciate this as 3M operates in a steady but
the firm’s international operations as well as its five low-growth industry, and we prefer returning capital to
business segments. Before serving as COO, Roman was shareholders to overpaying for acquisitions or buying back
head of the industrial business group. Thulin continues to shares at less than attractive prices (for example,
serve as executive chairman of the board. immediately following 3M’s fourth-quarter 2018 results).
In these instances, we prefer management pay out an
Given Roman's comments at the Electrical Products Group increased dividend. Thulin also demonstrated a
Conference in early 2018, we doubt he will materially pivot willingness to aggressively monitor costs, going so far as
from 3M's playbook as laid out in its 2020 roadmap, to cancel the firm’s annual meeting product expo in 2013
particularly since he was intimately involved with the in the interest of shareholders. We also appreciated
strategic planning process. In the past, Roman has Thulin’s commitment to preserving 3M’s 15%-time policy
emphasized growth through both organic investments and for unallocated assignments for 3M’s senior engineers, as
acquisitions and continuing to leverage insights around well as his reluctance to impose too much process in R&D
3M’s critical customers in product development–-a at the cost of innovation. We believe this commitment
strategy we like. Our view was recently reaffirmed in 3M’s remains steadfast at the firm under Roman’s leadership.
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3M Co MMM (XNYS)
21:38, UTC 19:33, UTC
The company’s leadership under Thulin wisely

emphasized sustainability, in our view, treating it as an
opportunity for 3M as opposed to a threat. We think the
firm is well positioned to capitalize on this increasing
paradigm shift, particularly as many of its solutions align
well with ESG priorities. Many of the technologies
developed for its electronics and energy segment could
benefit both the firm and stakeholders with the trend
toward more green solutions. Examples include the firm’s
filtration initiatives and the use of low-fouling
membranes. We also note the company’s commitment
through its Sustainability in Health Care Summit, which
shared best practices with its B2B customers in
sustainability. Finally, 3M has been a proven leader in the
field through its decadeslong Pollution Prevention Pays
program, and we appreciate its emphasis on water
reduction efforts as well as reducing raw material and
landfill waste.
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3M Co MMM (XNYS)
21:38, UTC 19:33, UTC
of a swing and a miss. We’ve been longtime fans of the

Analyst Notes Archive company and its unique corporate culture. Even so, we
think the 13% decline in the stock’s market price April 25
Our Thesis for Wide-Moat Rated 3M Remains Intact was largely foreseeable (at least at some juncture in the
as the Firm Continues Performing as Expected future), as we indicated by our 2-star rating before the
Joshua Aguilar, Eq. Analyst, 29 January 2019 April 25 announcement. Around this time last year, our fair
Wide-moat rated 3M had a decent fourth quarter that was value estimate represented the lowest price target in
broadly in line with both our fourth-quarter and full-year consensus estimates. As we built our bottom-up analysis
expectations. As we roll our model forward, we anticipate by business subsegments, we simply couldn’t understand
modestly raising our fair value estimate by about 1% how 3M’s constituent businesses would support the $219
based mostly on time value of money and new pension stock price at April 24’s close, particularly amid markedly
assumptions. We are leaving our long-run expectations slowing top-line organic growth in its end markets. 3M
relatively intact. We may make some additional minor has significant amounts of exposure to the slowing
changes as the firm releases both its annual report and automotive and electronic end markets, as well as China,
its sub-segment information. Even so, we are retaining compared with peers (the entire Asia-Pacific region
our wide-moat, low uncertainty, stable trend, and represents nearly one third of 3M’s sales).
exemplary stewardship ratings.
Under Roman’s stewardship, moreover, the company has
3M reported full-year sales of $32.8 billion versus our walked back guidance on several occasions (five, by our
expectations of $32.9 billion with growth of 3.5% year count), and that’s only in one year’s time. While we
over year (or 3.2% on an organic local-currency basis). understand short-cycle businesses are inherently hard to
GAAP EPS was also modestly in line with our expectations predict (3M lacks the massive backlog in long-cycle
at $8.89 for the full year compared with our $8.92 businesses that Honeywell can count on in 40% of its
estimate. Adjusting for a net tax expense of 29 cents per businesses, for example), we think prudence could have
share and an after-tax expense of $1.28 related to a spared the irrational rise in the stock price before the April
first-quarter legal settlement, adjusted EPS for the year 25 announcement. However, we only expect to modestly
came in at $10.46. Our current GAAP EPS expectations for reduce our fair value estimate, despite what we view as
2019, prior to announced results, come in at $10.64 continued near-term headwinds, by about 1% to 2%. Still,
compared with management’s current guidance of $10.45 we retain our wide moat, low uncertainty, stable trend,
to $10.90, or just below the midpoint. Management and Exemplary stewardship ratings.
expects that a large proportion of 3M’s improvement from
full-year 2018 results will come from both organic sales 3M’s Largest Deal Ever for Advanced Wound Care
growth and portfolio management. Based on Provider Doesn’t Bandage Its Latest Cut
management’s commentary during the call, we expect Joshua Aguilar, Eq. Analyst, 03 May 2019
that a majority of organic sales growth will be back-end On May 2, wide-moat rated 3M announced by far its
loaded for 2019, particularly given tougher first-half largest deal ever for advanced wound care provider
comps. We note that 3M’s free cash flow conversion Acelity. After reviewing the deal, the initial impact of 3M’s
dipped this year relative to the prior four years (at 91% re-segmentation, and incorporating first-quarter results
compared with a range of 100% to 104%), but we’re not and management’s significantly lowered full-year 2019
overly concerned and expect this will improve and hover guidance, we lower our fair value estimate to $190 per
around 100% next year. 3M remains one of the highest share from $197 previously. The primary driver of the lower
quality diversified industrials in our coverage in terms of valuation is management’s most recent outlook on organic
free cash flow conversion (free cash flow divided by net growth throughout the rest of the 2019 year, which
income). markedly fell below our near-term expectations.
Nevertheless, from an intrinsic valuation perspective, we
3M’s Disastrous First-Quarter Results Represent remind investors that we saw the previously 2-star stock
CEO Mike Roman’s First Challenge at the Helm as overvalued when it rallied to $219 prior to first-quarter
Joshua Aguilar, Eq. Analyst, 25 April 2019 earnings. We believe our long-term thesis on the stock
Wide-moat 3M’s first-quarter earnings were nothing short remains intact, and we continue to retain our wide-moat,
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3M Co MMM (XNYS)
21:38, UTC 19:33, UTC
stable trend, Exemplary stewardship, and low uncertainty irrational fear that the obligation could total tens of billions
ratings. At a stock price of $185, we think that stock now of dollars, which we don’t agree with based on available
trades within a realm of reasonableness in terms of its evidence.
price to fair value ratio.
We calculate 3M’s exposure based on information from
Net of synergies, the deal seems on the expensive side the latest 10-Q filing, first-quarter 2019, including the
to us at 15 times unadjusted EBITDA. We model the deal number of jurisdictions where litigation is pending, as well
as only slightly value dilutive, akin to the market reaction as our estimate of 3M's total responsibility based on the
today which saw the stock drop about 1% throughout the Minnesota settlement. PFAS, which are a family of
trading day. We believe the deal’s rationale highly manmade fluorinated organic chemicals, have been used
depends on management’s ability to extract ambitious since the 1950s for stain-repellent Scotchgard, while the
cost synergies from its target (at 8% of revenue over the firm also sold its PFAS to other companies to make Teflon
course of three years). We have several concerns with and firefighting foams, among other applications. These
this daunting task. First, management has acknowledged are strong molecular bonds that are found in the water
it was slow to react to market headwinds that prompted supply and from our understanding, don’t break down in
its lowered guidance. Short-cycle businesses are nature.
inherently hard to predict, but we had some early clues
of the slowdown trickling through China as well as
automotive and electronics from the rest of our coverage.
Second, management is undergoing a restructuring
program that was only recently announced and is also
juggling several lawsuits related to PFAS and asbestos
litigation related to its respirators.
We Slightly Lower Our FVE for 3M After Evaluating

the Firm’s PFAS Exposure
Joshua Aguilar, Eq. Analyst, 31 May 2019
After taking a closer look at 3M’s PFAS exposure, we
slightly lower our fair value estimate to $187 from $190.
The firm’s reserve for PFAS liability currently totals $235
million, which it took in the first quarter of 2019.
Importantly, however, that reserve was solely for
manufacturing liability that 3M faced directly in some of
its facilities; specifically, three sites in the United States
and two in Europe. The reserve does not include 3M’s
product liability exposure, which we estimate will be
much greater and which the reserve does not adequately
address.
In our view, 3M’s exposure on the products side is about

$3.4 billion in our base scenario. This effect brought down
our fair value estimate by $4, offset by a $1 boost from
the time value of money. In a bull case, this number falls
to $1.8 billion, and in a bear case rises to $7.8 billion. We
also amortize this obligation over the course of our explicit
forecast (less the final year, which would calculate the
value in perpetuity). We adjust these obligations out as
part of our adjusted EPS assumptions. Bottom line, we
believe a lot of the reaction in the stock price is based on
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Quantitative Equity Report | Release: 05 Jul 2019, 18:45 UTC | Reporting Currency: USD | Trading Currency: USD | Exchange:XNYS Page
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3M Co MMM QQQQ 05 Jul 2019 02:00 UTC

Last Close Fair ValueQ Market Cap Sector Industry Country of Domicile
05 Jul 2019 05 Jul 2019 02:00 UTC 05 Jul 2019
172.00 177.10 100.9 Bil p Industrials Diversified Industrials USA United States
There is no one analyst in which a Quantitative Fair Value Estimate and Quantitative
Star Rating are attributed to; however, Mr. Lee Davidson, Head of Quantitative
Price vs. Quantitative Fair Value
Research for Morningstar, Inc., is responsible for overseeing the methodology that 2015 2016 2017 2018 2019 2020 Quantitative Fair Value Estimate
supports the quantitative fair value. As an employee of Morningstar, Inc., Mr. Total Return
Davidson is guided by Morningstar, Inc.’s Code of Ethics and Personal Securities
Trading Policy in carrying out his responsibilities. For information regarding Conflicts Sales/Share
280
of Interests, visit http://global.morningstar.com/equitydisclosures Forecast Range
Forcasted Price
224 Dividend
Company Profile
Split
3M is a diversified industrials business that has been in Momentum: Negative
168
existence since 1902, when it was Minnesota Mining and Standard Deviation: 21.42
Manufacturing. Known for its research and development Liquidity: High
112
prowess, 3M is organized into four business segments: safety
and industrial, transportation and electronics, healthcare, and 159.32 52-Wk 219.75
consumer. About 60% of the company’s revenue comes from 56
outside the United States, with the industrial segment 130.60 5-Yr 259.77
constituting most of the firm’s net sales. Many of the
-5.8 21.5 34.4 -16.7 -8.2 Total Return %
company’s 55,000-plus products touch and concern a variety
-6.5 9.0 13.0 -11.7 -29.1 +/– Market (Morningstar US Index)
Quantitative Scores Scores 2.72 2.49 2.00 2.86 3.20 Trailing Dividend Yield %
All Rel Sector Rel Country 2.72 2.49 2.00 2.86 3.29 Forward Dividend Yield %
Quantitative Moat Wide 100 100 100 19.5 22.5 26.2 25.5 18.6 Price/Earnings
Valuation Fairly Valued 20 18 21 3.2 3.7 4.7 3.5 3.2 Price/Revenue
Quantitative Uncertainty Medium 99 99 97 Morningstar RatingQ
Financial Health Moderate 84 67 84 QQQQQ
QQQQ
QQQ
MMM QQ
Q
pUSA
2014 2015 2016 2017 2018 TTM Financials (Fiscal Year in Mil)
Undervalued Fairly Valued Overvalued 31,821 30,274 30,109 31,657 32,765 32,350 Revenue
Source: Morningstar Equity Research 3.1 -4.9 -0.5 5.1 3.5 -1.3 % Change
7,135 6,946 7,223 7,234 6,660 6,805 Operating Income
7.0 -2.6 4.0 0.2 -7.9 2.2 % Change
Valuation Sector Country
Current 5-Yr Avg Median Median 4,956 4,833 5,050 4,858 5,349 5,638 Net Income
Price/Quant Fair Value 0.99 1.04 0.80 0.83 6,626 6,420 6,662 6,240 6,439 7,344 Operating Cash Flow
Price/Earnings 18.6 23.1 16.8 20.1 -1,493 -1,461 -1,420 -1,373 -1,577 -1,664 Capital Spending
Forward P/E 18.0 — 13.9 13.9 5,133 4,959 5,242 4,867 4,862 5,680 Free Cash Flow
Price/Cash Flow 14.2 17.9 11.2 13.1 16.1 16.4 17.4 15.4 14.8 17.6 % Sales
Price/Free Cash Flow 18.4 23.5 18.4 19.5 7.49 7.58 8.16 7.93 8.89 9.42 EPS
Trailing Dividend Yield % 3.20 2.43 2.30 2.35 11.5 1.2 7.7 -2.8 12.1 6.0 % Change
Price/Book 10.4 8.7 1.6 2.4 7.30 7.40 8.63 8.55 7.47 9.53 Free Cash Flow/Share
Price/Sales 3.2 3.6 0.9 2.4 3.42 4.10 4.44 4.70 5.44 5.52 Dividends/Share
25.46 20.00 20.11 20.42 17.77 16.83 Book Value/Share
Profitability Sector Country 635,135 609,330 596,726 594,884 576,575 576,427 Shares Outstanding (K)
Current 5-Yr Avg Median Median
Profitability
Return on Equity % 54.5 42.6 11.5 12.9
32.4 39.0 45.9 44.4 50.1 54.5 Return on Equity %
Return on Assets % 14.5 14.8 4.8 5.2
15.3 15.1 15.4 13.7 14.4 14.5 Return on Assets %
Revenue/Employee (K) 345.9 343.6 515.1 325.9
15.6 16.0 16.8 15.4 16.3 17.4 Net Margin %
0.98 0.95 0.92 0.89 0.88 0.83 Asset Turnover
Financial Health Sector Country
Current 5-Yr Avg Median Median 2.4 2.8 3.2 3.3 3.7 4.0 Financial Leverage
Distance to Default 0.7 0.8 0.6 0.5 48.3 49.2 50.1 49.5 49.1 48.2 Gross Margin %
Solvency Score 319.9 — 484.2 552.4 22.4 22.9 24.0 22.9 20.3 21.0 Operating Margin %
Assets/Equity 3.7 3.1 1.8 1.7 6,731 8,753 10,678 12,096 13,411 15,580 Long-Term Debt
Long-Term Debt/Equity 1.4 0.9 0.2 0.4 13,109 11,708 10,298 11,563 9,796 9,703 Total Equity
3.7 3.6 3.5 3.6 3.7 3.7 Fixed Asset Turns
Growth Per Share Quarterly Revenue & EPS Revenue Growth Year On Year %
1-Year 3-Year 5-Year 10-Year Revenue (Mil) Mar Jun Sep Dec Total
Revenue % 3.5 2.7 1.2 2.6 2019 7,863.0 — — — — 9.0
Operating Income % -6.3 -1.2 0.0 2.4 2018 8,278.0 8,390.0 8,152.0 7,945.0 32,765.0 7.7 7.4
6.0
Earnings % 12.1 5.5 5.8 6.2 2017 7,685.0 7,810.0 8,172.0 7,990.0 31,657.0
3.7
Dividends % 15.7 9.9 16.5 10.5 2016 7,409.0 7,662.0 7,709.0 7,329.0 30,109.0 1.9
Book Value % -12.6 -3.2 -8.4 1.8 Earnings Per Share ()
-0.2 -0.6
Stock Total Return % -10.0 2.2 6.1 13.1 2019 1.51 — — — —
2018 0.98 3.07 2.58 2.27 8.89
-5.0
2017 2.16 2.58 2.33 0.85 7.93
2017 2018 2019
2016 2.05 2.08 2.15 1.88 8.16
© Morningstar 2019. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and ®
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are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, ß
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Research Methodology for Valuing Companies

Qualitative Equity Research Overview intangible assets, switching costs, network effect, cost Our model is divided into three distinct stages:
At the heart of our valuation system is a detailed projection advantage, and efficient scale.
of a company's future cash flows, resulting from our Stage I: Explicit Forecast
analysts' research. Analysts create custom industry and Companies with a narrow moat are those we believe In this stage, which can last five to 10 years, analysts
company assumptions to feed income statement, balance are more likely than not to achieve normalized excess make full financial statement forecasts, including items
sheet, and capital investment assumptions into our globally returns for at least the next 10 years. Wide-moat such as revenue, profit margins, tax rates, changes in
standardized, proprietary discounted cash flow, or DCF, companies are those in which we have very high working-capital accounts, and capital spending. Based
modeling templates. We use scenario analysis, in-depth confidence that excess returns will remain for 10 years, on these projections, we calculate earnings before
competitive advantage analysis, and a variety of other with excess returns more likely than not to remain for at interest, after taxes, or EBI, and the net new
analytical tools to augment this process. We believe this least 20 years. The longer a firm generates economic investment, or NNI, to derive our annual free cash flow
bottom-up, long-term, fundamentally based approach profits, the higher its intrinsic value. We believe low- forecast.
allows our analysts to focus on long-term business drivers, quality no-moat companies will see their normalized
which have the greatest valuation impact, rather than short- returns gravitate toward the firm's cost of capital more Stage II: Fade
term market noise. quickly than companies with moats. The second stage of our model is the period it will take
the company's return on new invested capital—the
Morningstar's equity research group (“we," "our") believes To assess the direction of the underlying competitive return on capital of the next dollar invested ("RONIC")—
that a company's intrinsic worth results from the future advantages, analysts perform ongoing assessments of to decline (or rise) to its cost of capital. During the Stage
cash flows it can generate. The Morningstar Rating for the moat trend. A firm's moat trend is positive in cases II period, we use a formula to approximate cash flows in
stocks identifies stocks trading at an uncertainty-adjusted where we think its sources of competitive advantage lieu of explicitly modeling the income statement,
discount or premium to their intrinsic worth—or fair value are growing stronger; stable where we don't anticipate balance sheet, and cash flow statement as we do in
estimate, in Morningstar terminology. Five-star stocks sell changes to competitive advantages over the next Stage I. The length of the second stage depends on the
for the biggest risk-adjusted discount to their fair values several years; or negative when we see signs of strength of the company's economic moat. We forecast
whereas 1-star stocks trade at premiums to their intrinsic deterioration. this period to last anywhere from one year (for
worth. companies with no economic moat) to 10–15 years or
All the moat and moat trend ratings undergo periodic more (for wide-moat companies). During this period,
Four key components drive the Morningstar rating: (1) our review and any changes must be approved by the cash flows are forecast using four assumptions: an
assessment of the firm's economic moat, (2) our estimate of Morningstar Economic Moat Committee, comprised of average growth rate for EBI over the period, a
the stock's fair value, (3) our uncertainty around that fair senior members of Morningstar's equity research normalized investment rate, average return on new
value estimate and (4) the current market price. This department. invested capital, or RONIC, and the number of years
process ultimately culminates in our single-point star rating. until perpetuity, when excess returns cease. The
2. Estimated Fair Value investment rate and return on new invested capital
1. Economic Moat Combining our analysts' financial forecasts with the decline until the perpetuity stage is reached. In the case
The concept of an economic moat plays a vital role not firm's economic moat helps us assess how long returns of firms that do not earn their cost of capital, we
only in our qualitative assessment of a firm's long-term on invested capital are likely to exceed the firm's cost of assume marginal ROICs rise to the firm's cost of capital
investment potential, but also in the actual calculation capital. Returns of firms with a wide economic moat (usually attributable to less reinvestment), and we may
of our fair value estimates. An economic moat is a rating are assumed to fade to the perpetuity period over truncate the second stage.
structural feature that allows a firm to sustain excess a longer period of time than the returns of narrow-moat
profits over a long period of time. We define excess firms, and both will fade slower than no-moat firms, Stage III: Perpetuity
economic profits as returns on invested capital (or ROIC) increasing our estimate of their intrinsic value. Once a company's marginal ROIC hits its cost of capital,
over and above our estimate of a firm's cost of capital, we calculate a continuing value, using a standard
or weighted average cost of capital (or WACC). Without perpetuity formula. At perpetuity, we assume that any
a moat, profits are more susceptible to competition. We growth or decline or investment in the business neither
have identified five sources of economic moats: creates nor destroys value and that any new investment
provides a return in line with estimated WACC.
Morningstar Research Methodology for Valuing Companies Because a dollar earned today is worth more than a
dollar earned tomorrow, we discount our projections of
cash flows in stages I, II, and III to arrive at a total
present value of expected future cash flows. Because we
are modeling free cash flow to the firm—representing cash
available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
weighted average of the costs of equity, debt, and preferred
stock (and any other funding sources), using expected
future proportionate long-term market-value weights.
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3. Uncertainty Around That Fair Value Estimate Morningstar Equity Research Star Rating Methodology
Morningstar's Uncertainty Rating captures a range of likely
potential intrinsic values for a company and uses it to
assign the margin of safety required before investing, which
in turn explicitly drives our stock star rating system. The
Uncertainty Rating represents the analysts' ability to bound
the estimated value of the shares in a company around the
fair value estimate, based on the characteristics of the
business underlying the stock, including operating and
financial leverage, sales sensitivity to the overall
economy, product concentration, pricing power, and
other company-specific factors.
Analysts consider at least two scenarios in addition to

their base case: a bull case and a bear case.
Assumptions are chosen such that the analyst believes
there is a 25% probability that the company will perform
better than the bull case, and a 25% probability that the
company will perform worse than the bear case. The
distance between the bull and bear cases is an
important indicator of the uncertainty underlying the
fair value estimate.
Our recommended margin of safety widens as our

uncertainty of the estimated value of the equity
increases. The more uncertain we are about the
estimated value of the equity, the greater the discount
we require relative to our estimate of the value of the
firm before we would recommend the purchase of the Morningstar Star Rating for Stocks The Morningstar Star Ratings for stocks are defined below:
shares. In addition, the uncertainty rating provides Once we determine the fair value estimate of a stock, we
guidance in portfolio construction based on risk compare it with the stock's current market price on a daily QQQQQ We believe appreciation beyond a fair risk-
tolerance. basis, and the star rating is automatically re-calculated at adjusted return is highly likely over a multiyear time frame.
the market close on every day the market on which the The current market price represents an excessively
Our uncertainty ratings for our qualitative analysis are stock is listed is open. pessimistic outlook, limiting downside risk and maximizing
low, medium, high, very high, and extreme. Please note, there is no predefined distribution of stars. upside potential.
That is, the percentage of stocks that earn 5 stars can
× Low–margin of safety for 5-star rating is a 20% discount fluctuate daily, so the star ratings, in the aggregate, can QQQQ We believe appreciation beyond a fair risk-
and for 1-star rating is 25% premium. serve as a gauge of the broader market's valuation. When adjusted return is likely.
× Medium–margin of safety for 5-star rating is a 30% there are many 5-star stocks, the stock market as a whole is
discount and for 1-star rating is 35% premium. more undervalued, in our opinion, than when very few QQQ Indicates our belief that investors are likely to
× High–margin of safety for 5-star rating is a 40% discount companies garner our highest rating. receive a fair risk-adjusted return (approximately cost of
and for 1-star rating is 55% premium. equity).
× Very High–margin of safety for 5-star rating is a 50% We expect that if our base-case assumptions are true the
discount and for 1-star rating is 75% premium. market price will converge on our fair value estimate over QQ We believe investors are likely to receive a less than
× Extreme–margin of safety for 5-star rating is a 75% time, generally within three years (although it is impossible fair risk-adjusted return.
discount and for 1-star rating is 300% premium. to predict the exact time frame in which market prices may
adjust). Q Indicates a high probability of undesirable risk-adjusted
4. Market Price returns from the current market price over a multiyear time
The market prices used in this analysis and noted in the Our star ratings are guideposts to a broad audience and frame, based on our analysis. The market is pricing in an
report come from exchange on which the stock is listed, individuals must consider their own specific investment excessively optimistic outlook, limiting upside potential and
which we believe is a reliable source. goals, risk tolerance, tax situation, time horizon, income leaving the investor exposed to Capital loss.
needs, and complete investment portfolio, among other
For more details about our methodology, please go to factors.
https://shareholders.morningstar.com.
?

Other Definitions quantitative report and the quantitative ratings, there is no Value Estimate, current market price, and the Quantitative
one analyst in which a given report is attributed to; Uncertainty Rating. The rating is expressed as 1-Star, 2-Star,
Last Price: Price of the stock as of the close of the market however, Mr. Lee Davidson, Head of Quantitative Research 3-Star, 4-Star, and 5-Star.
of the last trading day before date of the report. for Morningstar, Inc., is responsible for overseeing the
methodology that supports the quantitative equity ratings Q: the stock is overvalued with a reasonable margin of
Stewardship Rating: Represents our assessment of used in this report. As an employee of Morningstar, Inc., safety.
management's stewardship of shareholder capital, with Mr. Davidson is guided by Morningstar, Inc.'s Code of Ethics Log (Quant FVE/Price)<–1*Quantitative Uncertainty
particular emphasis on capital allocation decisions. Analysts and Personal Securities Trading Policy in carrying out his
consider companies' investment strategy and valuation, responsibilities. QQ: the stock is somewhat overvalued.
financial leverage, dividend and share buyback policies, Log (Quant FVE/Price) between (–1*Quantitative
execution, compensation, related party transactions, and Quantitative Equity Ratings Uncertainty, –0.5*Quantitative Uncertainty)
accounting practices. Corporate governance practices are Morningstar's quantitative equity ratings consist of:
only considered if they've had a demonstrated impact on (i) Quantitative Fair Value Estimate QQQ: the stock is approximately fairly valued.
shareholder value. Analysts assign one of three ratings: (ii) Quantitative Star Rating Log (Quant FVE/Price) between (–0.5*Quantitative
"Exemplary," "Standard," and "Poor." Analysts judge (iii) Quantitative Uncertainty Uncertainty, 0.5*Quantitative Uncertainty)
stewardship from an equity holder's perspective. Ratings (iv) Quantitative Economic Moat
are determined on an absolute basis. Most companies will (v) Quantitative Financial Health QQQQ: the stock is somewhat undervalued.
receive a Standard rating, and this is the default rating in (collectively the "Quantitative Ratings"). Log (Quant FVE/Price) between (0.5*Quantitative
the absence of evidence that managers have made Uncertainty, 1*Quantitative Uncertainty)
exceptionally strong or poor capital allocation decisions. The Quantitative Ratings are calculated daily and derived
from the analyst-driven ratings of a company's peers as QQQQQ: the stock is undervalued with a reasonable
Quantitative Valuation: Using the below terms, intended to determined by statistical algorithms. Morningstar, Inc. margin of safety. Log (Quant FVE/Price) >1*Quantitative
denote the relationship between the security's Last Price ("“Morningstar," "we," "our") calculates Quantitative Uncertainty
and Morningstar's quantitative fair value estimate for that Ratings for companies whether it already provides analyst
security. ratings and qualitative coverage. In some cases, the Quantitative Uncertainty: Intended to represent
Quantitative Ratings may differ from the analyst ratings Morningstar's level of uncertainty about the accuracy of the
× Undervalued: Last Price is below Morningstar's because a company's analyst-driven ratings can quantitative fair value estimate. Generally, the lower the
quantitative fair value estimate. significantly differ from other companies in its peer group. quantitative Uncertainty, the narrower the potential range
× Fairly Valued: Last Price is in line with Morningstar's of outcomes for that particular company. The rating is
quantitative fair value estimate. Quantitative Fair Value Estimate: Intended to represent expressed as Low, Medium, High, Very High, and Extreme.
× Overvalued: Last Price is above Morningstar's Morningstar's estimate of the per share dollar amount that
quantitative fair value estimate. a company's equity is worth today. Morningstar calculates × Low: the interquartile range for possible fair values is less
the quantitative fair value estimate using a statistical model than 10%.
Risk Warning derived from the fair value estimate Morningstar's equity × Medium: the interquartile range for possible fair values is
Please note that investments in securities are subject to analysts assign to companies. Please go to less than 15% but greater than 10%.
market and other risks and there is no assurance or https://shareholders.morningstar.com for information about × High: the interquartile range for possible fair values is
guarantee that the intended investment objectives will be fair value estimates Morningstar's equity analysts assign to less than 35% but greater than 15%.
achieved. Past performance of a security may or may not be companies. × Very High: the interquartile range for possible fair values
sustained in future and is no indication of future is less than 80% but greater than 35%.
performance. A security investment return and an investor's Quantitative Economic Moat: Intended to describe the × Extreme: the interquartile range for possible fair values is
principal value will fluctuate so that, when redeemed, an strength of a firm's competitive position. It is calculated greater than 80%.
investor's shares may be worth more or less than their using an algorithm designed to predict the Economic Moat
original cost. A security's current investment performance rating a Morningstar analyst would assign to the stock. The Quantitative Financial Health: Intended to reflect the
may be lower or higher than the investment performance rating is expressed as Narrow, Wide, or None. probability that a firm will face financial distress in the near
noted within the report. Morningstar's Uncertainty Rating future. The calculation uses a predictive model designed to
serves as a useful data point with respect to sensitivity × Narrow: assigned when the probability of a stock anticipate when a company may default on its financial
analysis of the assumptions used in our determining a fair receiving a "Wide Moat" rating by an analyst is greater obligations. The rating is expressed as Weak, Moderate,
value price. than 70% but less than 99%. and Strong.
× Wide: assigned when the probability of a stock receiving
Quantitative Equity Reports Overview a "Wide Moat" rating by an analyst is greater than 99%. × Weak: assigned when Quantitative Financial Health <0.2
The quantitative report on equities consists of data, × None: assigned when the probability of an analyst × Moderate: assigned when Quantitative Financial Health
statistics and quantitative equity ratings on equity receiving a "Wide Moat" rating by an analyst is less than is between 0.2 and 0.7
securities. Morningstar, Inc.'s quantitative equity ratings are 70%. × Strong: assigned when Quantitative Financial Health >0.7
forward looking and are generated by a statistical model
that is based on Morningstar Inc.'s analyst-driven equity Quantitative Star Rating: Intended to be the summary
ratings and quantitative statistics. Given the nature of the rating based on the combination of our Quantitative Fair
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Other Definitions
Last Close: Price of the stock as of the close of the market

of the last trading day before date of the report.
Quantitative Valuation: Using the below terms, intended to

denote the relationship between the security's Last Price
and Morningstar's quantitative fair value estimate for that
security.
× Undervalued: Last Price is below Morningstar's

quantitative fair value estimate.
× Fairly Valued: Last Price is in line with Morningstar's
× Overvalued: Last Price is above Morningstar's
This Report has not been made available to the issuer of the
security prior to publication.
Risk Warning
Please note that investments in securities are subject to
market and other risks and there is no assurance or
guarantee that the intended investment objectives will be
achieved. Past performance of a security may or may not be
sustained in future and is no indication of future
performance. A security investment return and an investor's
principal value will fluctuate so that, when redeemed, an
investor's shares may be worth more or less than their
original cost. A security's current investment performance
may be lower or higher than the investment performance
noted within the report.
The quantitative equity ratings are not statements of fact.

Morningstar does not guarantee the completeness or
accuracy of the assumptions or models used in determining
the quantitative equity ratings. In addition, there is the risk
that the price target will not be met due to such things as
unforeseen changes in demand for the company's products,
changes in management, technology, economic
development, interest rate development, operating and/or
material costs, competitive pressure, supervisory law,
exchange rate, and tax rate. For investments in foreign
markets there are further risks, generally based on
exchange rate changes or changes in political and social
conditions.
A change in the fundamental factors underlying the

quantitative equity ratings can mean that the valuation is
subsequently no longer accurate.
For more information about Morningstar's quantitative

methodology, please visit
http://global.morningstar.com/equitydisclosures.
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3M Co MMM (XNYS)
21:38, UTC 19:33, UTC
General Disclosure
The analysis within this report is prepared by the person
(s) noted in their capacity as an analyst for Morningstar’s
equity research group. The equity research group
consists of various Morningstar, Inc. subsidiaries
(“Equity Research Group)”. In the United States, that
subsidiary is Morningstar Research Services LLC, which
is registered with and governed by the U.S. Securities
and Exchange Commission.
The opinions expressed within the report are given in

good faith, are as of the date of the report and are
subject to change without notice. Neither the analyst
nor Equity Research Group commits themselves in
advance to whether and in which intervals updates to
the report are expected to be made. The written analysis
and Morningstar Star Rating for stocks are statements the Report and are subject to change. While financial situation or particular needs of any specific
of opinions; they are not statements of fact. Morningstar has obtained data, statistics and recipient. This publication is intended to provide
information from sources it believes to be reliable, information to assist institutional investors in making
The Equity Research Group believes its analysts make Morningstar does not perform an audit or seeks their own investment decisions, not to provide
a reasonable effort to carefully research information independent verification of any of the data, statistics, investment advice to any specific investor. Therefore,
contained in the analysis. The information on which the and information it receives. investments discussed and recommendations made
analysis is based has been obtained from sources herein may not be suitable for all investors: recipients
believed to be reliable such as, for example, the The quantitative equity ratings are not a market call, must exercise their own independent judgment as to
company’s financial statements filed with a regulator, and do not replace the User or User’s clients from the suitability of such investments and recommendations
company website, Bloomberg and any other the conducting their own due-diligence on the security. The in the light of their own investment objectives,
relevant press sources. Only the information obtained quantitative equity rating is not a suitability experience, taxation status and financial position.
from such sources is made available to the issuer who assessment; such assessments take into account may
is the subject of the analysis, which is necessary to factors including a person’s investment objective, The information, data, analyses and opinions presented
properly reconcile with the facts. Should this sharing of personal and financial situation, and risk tolerance all herein are not warranted to be accurate, correct,
information result in considerable changes, a statement of which are factors the quantitative equity rating complete or timely. Unless otherwise provided in a
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Equity Research Group has obtained data, statistics and Equity Research Group represents that the report
information from sources it believes to be reliable, Prices noted with the Report are the closing prices on contents meet all of the presentation and/or disclosure
neither the Equity Research Group nor Morningstar, Inc. the last stock-market trading day before the publication standards applicable in the jurisdiction the recipient is
performs an audit or seeks independent verification of date stated, unless another point in time is explicitly located.
any of the data, statistics, and information it receives. stated.
Except as otherwise required by law or provided for in
General Quantitative Disclosure General Disclosure (applicable to both Quantitative a separate agreement, the analyst, Morningstar, Inc.
The Quantitative Equity Report (“Report”) is derived and Qualitative Research) and the Equity Research Group and their officers,
from data, statistics and information within Unless otherwise provided in a separate agreement, directors and employees shall not be responsible or
Morningstar, Inc.’s database as of the date of the Report recipients accessing this report may only use it in the liable for any trading decisions, damages or other
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such Users or their clients in making an investment pertaining to the security concerned, including without
decision. The quantitative equity ratings noted the This report is for informational purposes only and has limitation, information relevant to its investment
Report are provided in good faith, are as of the date of no regard to the specific investment objectives, objectives, risks, and costs before making an
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Morningstar Equity Analyst Report | Report as of 05 Jul 2019 11:45, UTC | Page 1 of 15

Morningstar Pillars Analyst Quantitative Important Disclosure:

The company’s leadership under Thulin wisely

of a swing and a miss. We’ve been longtime fans of the

We Slightly Lower Our FVE for 3M After Evaluating

In our view, 3M’s exposure on the products side is about

3M Co MMM QQQQ 05 Jul 2019 02:00 UTC

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

Analysts consider at least two scenarios in addition to

Our recommended margin of safety widens as our

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

Last Close: Price of the stock as of the close of the market

Quantitative Valuation: Using the below terms, intended to

× Undervalued: Last Price is below Morningstar's

The quantitative equity ratings are not statements of fact.

A change in the fundamental factors underlying the

For more information about Morningstar's quantitative

The opinions expressed within the report are given in

SEBI or any other legal/regulatory body. Morningstar

The Research Analyst has not served as an officer,

*The Conflicts of Interest disclosure above also applies

For recipients in Japan: The Report is distributed by

For recipients in Singapore: This Report is

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