The Global Demographic Tailwind

[DewDiligence]

Three 3M Execs Sell $3.2M in Stock

[I never like to see insider selling and, in two of these three cases, executives exercised options that didn’t expire until 2Q11. However, I’m inclined to be more lenient in my view of insider selling at 3M that at a company such as CAT (#msg-46432715) because: i) 3M’s business performance (not just the performance of the stock) has been excellent; and ii) 3M’s business is so diverse that a major problem lurking beneath the surface is highly unlikely. The stock’s valuation is admittedly not cheap, but neither is it expensive, IMO (#msg-46107986).]

http://online.barrons.com/article/SB126605951170345853.html

›FEBRUARY 16, 2010
By AVI SALZMAN

Diversified manufacturer 3M has posted two very strong quarters in a row and its shares hit a two-year high last month. With the stock on a roll, some executives with options have begun to cash them in.

Three 3M (Ticker: MMM) insiders sold a total of $3.2 million over the past week.

Jean Lobey, the vice president for safety, security and protection services, exercised options and sold 27,221 shares on Feb. 11 for $2.2 million, or about $79.35 per share on average. Most of the options were set to expire in May 2011.

John Woodworth, the vice president of corporate supply-chain operations, exercised options and sold 6,396 shares on Feb. 11 for $513,000, or about $80.16 per share on average. His options were set to expire this May. [Since these options were expiring soon, I have less of a problem with this sale than the other two.]

Joaquin Delgado, an executive vice president, exercised options and sold 6,280 shares for $497,000, or about $79.10 per share on average. Delgado's options were set to expire in May 2011.

None of the insiders own more than 1% of the company's stock.

A company spokeswoman says the executives sold because they have limited windows to exercise options that are close to expiring.

The sales represent an increase in selling activity at the company. 3M insiders have sold $4.6 million worth of shares in the past month, versus less than $1 million in the prior 11 months, according to InsiderScore.com. There had been only four sales following options exercises in the past six years [a remarkable record], according to Ben Silverman, research director at InsiderScore.com.

"It's certainly a little bit unusual to see that," he says. "It could be a signal that there are some valuation concerns among insiders."

That said, Silverman does not think investors need to be alarmed by the sales. The company has "lots of moving parts" and the executives may not be making a call on the long-term future of the company. [I agree with this line of thinking, as noted in the prologue of this post.]

"I would caution against getting too bearish," he says.

Indeed, 3M has made progress in improving its business in recent months, closing down less-efficient factories and streamlining its manufacturing and distribution processes. The company handily beat analyst expectations in each of the past two quarters, most recently beating fourth-quarter earnings estimates by nine cents per share for the fourth quarter on Jan. 28. The company has also increased its dividend for the 52nd year in a row.

"3M's fourth-quarter earnings report…was solid across virtually all operating metrics and continues to demonstrate that 3M under its current leadership is making strong progress at not just 'surviving' the Great Recession (due in no small part to the immense sacrifices made by all 3M employees in 2009) but that the company is laying the foundation for enhanced long-term growth as a result of its expanded research and development efforts," wrote Sterne Agee analysts who rate the stock at Neutral.‹