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Conglomerates

3M Company, Inc.
I took a look and the last time the company had a positive tangible book value was in 2014. But when you sell five business units, buy two business units, and implement a restructuring plan all in the same year, negative financial metrics are bound to happen, including a y-o-y reduction in earnings and free cash flow, and a y-o-y increase in sales, debt, goodwill, and intangibles. While I think the stock is substantially overvalued, I did look and a five year hold, 12/31/2012 thru 12/31/2017, would have generated a 158% return on investment, or rougly 32% per year. Not bad for a company that at it’s core, makes things that stick.

3M Company, Inc. (NYSE: MMM) – FYE 12/2017 – OVER VALUED – The stock is currently trading at levels above my most recent $100 fair value estimate – Please See Linked Worksheet


Danaher Corporation (NYSE: DHR) – FYE 12/2016

General Electric (NYSE: GE) – FYE 12/2016

REX American Resources Corporation (NYSE: REX) – FYE 01/2017

United Technologies Corporation
Admittedly, it’s early in the most active part of the 10-K filing season, but I have been noticing a somewhat bothersome trend for the stocks I have reviewed thus far; y-o-y operating cash flow and consequently free cash flow are both lower. In the case of UTX, operating cash flow is lower by 13% and free cash flow is lower by 22%. Granted CAPEX increase by 19%, so that explains some of it, but it doesn’t explain operating cash flow. While y-o-y free cash flow fell, so did earnings, falling 25%. Debt on the other hand increased by 15%, while revenues were up 5%. I certainly don’t think these numbers would cause me to sell the stock if I owned it, but to my mind, it certainly bears a bit more scrutiny.

One of the things that does fit, and will always fit is earnings, and y-o-y, the company’s earnings were down roughly 40%. Sales during the period did increase 5%, but free cash flow fell 35% along with debt which fell 6%. Things like this always puzzle me. I mean here’s a company that during FY15 and FY16 spent almost $3.6B on acquisitions only to see future earnings decline? It just makes we wonder if anybody at all understands the complex finance and legalese that are apart of the numerous business arrangements and combinations the company is involved with. Of course maybe, just like Congress, nobody is bothering to read through the deals.

So what’s this deal? My short-term (3-6 week hold) target price for the stock is $136.90, with an initial trailing stop at $124.56. My current future target price for the stock (a 5 year hold) is $182, which is an average annual return of 9%. A prior five year hold of the stock would have returned an average of 12% per year. As is always the case, please keep in mind that any investment has the potential for loss and that past performance is no guarantee of future results.

United Technologies Corporation (NYSE: KMI) – FYE 12/2017 – OVER VALUED – The stock is currently trading at levels above my most recent $47 fair value estimate – Please See Linked Worksheet

Please note that worksheets are updated basis the most current SEC 10-K ANNUAL filing.