3M Stock Reels From Legal Setback, EPA News

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The conglomerate

3M

is facing a couple of legal risks that are weighing on its shares. Investors’ approach has been to sell first and ask questions later, and Wall Street isn’t pushing back against that reaction.

On Friday, Judge Jeffrey Graham of the U.S. Bankruptcy Court in Indianapolis essentially denied an attempt by

3M
’s
attempt to move legal liabilities associated with faulty earplugs sold to the military by a 3M (ticker: MMM) subsidiary into bankruptcy court. That would have capped the size of the payouts from the earplug litigation.

3M said it was disappointed and plans to appeal the ruling.

The Environmental Protection Agency also had news affecting 3M and its shareholders on Friday. The agency proposed to declare perfluorooctanoic acid, or PFOA, and perfluorooctanesulfonic acid, or PFAS, hazardous substances under the Superfund law, formally known as the Comprehensive Environmental Response, Compensation, and Liability Act. That places additional burden on polluters for cleanup.

It matters to 3M because the company, and others, manufactured PFAS and related companies long ago. The chemicals have been found in groundwater where they were produced.

3M shares fell 9.5% on Friday and lost another 0.6% to $128.35 early on Monday. The

S&P 500
and

Dow Jones Industrial Average
were off 0.5% and 0.6%, respectively.

On Monday, Wolfe Research analyst Nigel Coe wrote the earplugs “judgment puts an upward bias to an eventual settlement.” With almost 300,000 cases and legal fees piling up, he said, a negotiated settlement might be the best way forward. He cited $10 billion as the potential cost of 3M.

All the uncertainty keeps him on the sidelines. He rates 3M stock at Sell and has a target of $120 for the price.

RBC analyst Deane Dray also rates shares Sell with a target of $120, but the potential designation of PFOA and PFAS is also behind his call. “Once PFAS is designated as a hazardous substance under the Superfund law, the EPA can then force the companies that caused contamination to pay for cleanup work,” wrote Dray in a Sunday report. “The overarching takeaway is that the national PFAS remediation Superfund scenario has been set in motion, and 3M could be on the hook for remediation costs sooner than later.”

Dray’s report doesn’t say how much 3M might have to spend on a cleanup, but prior reports from analysts have put the potential bill in the tens of billions of dollars. 3M didn’t immediately respond to a request for comment about cleanup liability.

The overarching takeaway for investors is that 3M stock looks likely to be going nowhere. Only one out of 21 analysts, or fewer than 5%, rates shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.

Wall Street wants clarity on legal issues before recommending the stock, which peaked in 2018 at about double the current level. Investors appear to feel the same way analysts do.

Write to Al Root at [email protected]