3M (NYSE:MMM) and a city in Florida this week were granted more time by a federal judge to try to reach a global settlement in a landmark trial that would decide how much makers of “forever chemicals” will have to pay to filter them from drinking water nationwide.
The possibility of avoiding a trial is encouraging, but still leaves 3M (MMM) as a target for other litigation, analysts at investment bank Morgan Stanley said Wednesday.
“We believe risk/reward on a better understanding of liability magnitude is more balanced today as the implied total looks more plausible,” Joshua C. Pokrzywinski, analyst at Morgan Stanley, said in a June 7 report.
The bank is maintaining its Underweight rating on 3M (MMM) because the company is more affected by economic cycles than peers in the industrial sector.
3M (MMM), the maker of Scotch tape and Post-It Notes, is defending itself against claims that the per- and polyfluoroalkyl substances, or PFAS, it made for decades contaminated drinking water and soil. They’re known as forever chemicals because they don’t break down easily in the environment or animal tissue. 3M (MMM) also is being sued over foam earplugs it made for the military.
3M’s (MMM) stock rose last week after a news report said the company agreed to a tentative settlement of at least $10 billion with a variety of U.S. cities and towns to resolve water pollution claims tied to forever chemicals. The potential cost of the settlement was less than what some investors had estimated.
The report came days before the bellwether trial brought by the city of Stuart, Florida, was set to begin in federal court in Charleston, South Carolina. The case may help to set a precedent for whether 3M (MMM) and other companies that made PFAS or used the chemicals to make aqueous film forming foam (AFFF) for firefighting should pay to remove them from drinking water in thousands of U.S. cities.
The bellwether case was seen as helping to set a precedent for whether companies like 3M that manufactured the chemicals or firefighting foam containing them should pay billions of dollars to remove them from water systems across the U.S., or whether that cost will be borne by cities and residents.
“Clarity should be a net positive given the substantial derating over the past year, but AFFF is only one aspect of PFAS including personal injury, property damage, medical monitoring and other PFAS remediation outside of AFFF,” according to Morgan Stanley. “The rumored ‘at least $10B’ settlement cited by Bloomberg may provide order of magnitude context, but 3M (MMM) has not confirmed any figure and mediation is private.”
3M’s (MMM) potential legal liabilities may prevent the company from acquiring businesses whose growth is tied to the digitization of the industrial sector, according to Morgan Stanley. Also, 3M (MMM) may not benefit from the growth in computing power needed for artificial intelligence as it stops making PFAS used in chemicals to prevent processors from overheating.
“Electronics and thermal management remain important throughout the 3M (MMM) portfolio, and we continue to expect content growth in areas like automotive (both electric vehicle and internal combustion engine) based on higher electronics content, but the specifics of AI computing look less positive than they might have in the past,” according to Morgan Stanley.
More about 3M’s legal issues
3M is granted delay in ‘forever chemicals’ trial amid settlement talks 3M CEO ordered to attend mediation on earplug litigation