Cogent a Part of 3M Now - Analyst Blog

Recently, 3M Company (MMM) completed the acquisition of Cogent Inc., after the transaction was given consent by Cogent's stockholders at a meeting held on December 1, 2010. Cogent shares were valued at $10.50 per share.

The transaction was initially announced on August 30, 2010 and as per expectation closed in the fourth quarter of the year.

With the completion of the acquisition, Cogent is now a wholly-owned subsidiary of 3M, and is called 3M Cogent Inc. Cogent's biometric systems (finger, palm, face and iris) are used by governments, law enforcement agencies, and commercial enterprises.

The addition of these systems enhances 3M's security credential issuance and authentication product portfolio. The company's service offering for security issues of customers is also expanded, together with greater access into law enforcement, safe environment and commercial control applications.

Globally biometrics is a $4 billion market and is expected to grow at a rate greater than 20% per annum. Thus, the acquisition provides 3M a great opportunity to become a major benefactor of this expanding market, aided by Cogent's strong presence in biometric market.

3M continues to deliver sustainable increases in sales, earnings and free cash flow. For four consecutive quarters, the company has generated net growth of about 8% to 9% above the market. The company's strong results and continued outperformance strengthens our belief that 3M Co. will deliver stronger results in the coming years. We believe that continued capital expenditure with new product launches should bolster its prospects across most end-markets.

The company expects the collective end market demand in high growth economies to taper off toward the beginning of the fourth quarter, when markets adjust to new circumstances such as higher interest rates, lower stimulus funding or commodity inflation. The balance sheet is in good shape and puts it in a strong position, given uncertainty about the pace of the economic recovery.

However, the company's growth objectives are largely dependent on timing and market acceptances of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to the market at acceptable price points.

Further, the results have been impacted by worldwide economic and capital market conditions. Besides, negative consumer sentiment is affecting the retail store traffic. On the corporate side, lower employment levels are negatively reducing office supply purchases in most companies.

3M Company together with its subsidiaries operates as a diversified technology company with manufacturing operations spread over 60 countries worldwide. It has more than 35 business units organized into six segments: Consumer and Office, Display and Graphics, Electro and Communications, Healthcare, Industrial and Transportation, Safety, Security and Protection Services Business. Major competitors of 3M are Avery Dennison Corporation (AVY), EI DuPont de Nemours & Co. (DD) and Johnson & Johnson (JNJ).

We currently maintain our Neutral rating for the long term on 3M, with a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.

 
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