News

3M’s (NYSE:MMM) agreement to pay as much as $10.3 billion to settle hundreds of lawsuits brought by cities that claimed their drinking water was polluted with “forever chemicals” made by the company is a positive development for shareholders, according to analysts at Citibank.

“While the announcement does not specify the exact funding terms/schedule, we think the ability to fund the liability over time should alleviate some investor concerns related to the potential for outsized near-term pressure on 3M’s (MMM) free cash flow (and dividend) were a sizable settlement to be funded immediately,” Andrew Kaplowitz, analyst at Citibank, said in a June 22 report.

3M (MMM) will make payments over a 13-year period, but will take a pretax charge of $10.3 billion during the current quarter of this year. The company said it will provide more details in a filing with the U.S. Securities and Exchange Commission.

The settlement pertains to chemicals known as PFAS made by 3M (MMM) and used in firefighting foam that leached into the ground in cities and towns throughout the United States. PFAS have been dubbed forever chemicals because they don’t break down in animal tissue or the environment. 3M (MMM) disputed the claims.

The company’s revenue fell 3% from a year earlier to $34.2 billion in 2022, a decline partly attributed to changes in the value of the dollar compared with other currencies. 3M (MMM) returned $4.8 billion to shareholders in dividends and stock buybacks.

The PFAS settlement came about three weeks after Judge Richard Gergel in the U.S. District Court for the District of South Carolina agreed to delay a bellwether trial in which a city in Florida blamed 3M (MMM) for contaminating its drinking water. Attorneys on both sides of the lawsuit asked for more time to reach a settlement, which is subject to court approval.

3M (MMM) still faces other potential legal liabilities, such as personal-injury suits related to PFAS and earplugs made for the military, Citibank cautioned. About 250,000 veterans sued the company in the biggest civil injury case in U.S. history, claiming its Combat Arms earplugs didn’t prevent hearing loss.

“While important, this settlement represents only a portion of 3M’s (MMM) ongoing legal liabilities,” according to Citibank. “Overall though, our expectation is that this announcement should be well received by investors.”

The bank has a price target of $120 on 3M’s (MMM) stock, based on a price-to-earnings multiple of 12 times estimated EPS of $10 for 2024. The shares declined about 22% to $100.43 in the 12 months through June 22.

More about 3M