Is 3M Co (MMM) Rally Worth Chasing?

As we all know by now, stocks have had a great rally in the last few months, leaving the main benchmark indices trading at fairly high multiples. High quality blue-chip stocks are looking a little expensive across the board, which has me wondering whether or not it’s worth chasing the rally in some of these stocks. 3M Co (NYSE:MMM) is one of the large cap companies that have enjoyed a very solid run recently. Could there be more upside in store for this conglomerate?

Stock at a Glance

3M is a strongly diversified technology manufacturer with operations in a wide range of markets. A well-established company with a long history, 3M is one of America’s largest manufacturers, enjoying a sizable market cap of around $70 billion. Its beta of 1.03 makes it more or less as volatile as the broader market, and the stock yields about 2.3%. 3M’s main strength is its geographical diversity, earning approximately two-thirds of its revenue from abroad, with emerging markets accounting for about half of that and the lion share of the company’s growth. The stock is up 16.57% in the last twelve months.

Earnings and Cash Position

3M’s latest earnings report, released earlier in January, was in line with analyst estimates. Q4 2012 EPS came in at $1.41, which met the consensus, with sales up 4.2%. Revenue was up 4% YoY, which was above estimates by about 3%. Organic growth was also up around 4%, with volumes up 3.6%. Geographically, Europe continues to deliver soft sales, but US organic sales were up 5.2% and APAC, excluding Japan, up nearly 10%. For the full-year, EPS was up 6%, with 5 of 6 segments delivering margins over 21%. In terms of a cash position, the company appears to be fairly comfortable with about $4.5 billion in cash, versus 6 billion in debt, or a total debt to equity ratio of about 33. Leveraged free cash flow is at $2.28 billion, which leaves the company with some money to invest.

3M appears to be delivering slightly better growth than prime competitor Siemens. Siemens delivered a 3% increase in revenue for full-year 2012, with Q4 net income down 2% compared to the same period a year before. Additionally, orders for the full-year were down 4%. Siemens has more cash on hand than 3M, but also more debt, with a total debt to equity ratio of 72.6. Also, Siemens has a considerably lower leveraged free cash flow at only $263 million.