Shares of
3M
and the
DuPont
family of companies are up, a lot, in Friday trading. There has been positive movement on litigation related to so-called PFAS chemicals that have been found in ground water.
On Friday, DuPont (ticker: DD),
Chemours
(CC), and
Corteva
(CTVA) announced a settlement with water providers across much of the U.S. The three will contribute about $1.2 billion to a settlement fund. That money can be used to monitor and clean up PFAS. (The three companies are involved because they were once part of a larger DuPont.)
PFAS litigation has been an overhang for years. The settlement is an important market for investors looking to size the total liability.
PFAS, short for per- and polyfluoroalkyl substances, were manufactured in the U.S. from the 1940s through 2000. They are long-lasting, and can continue to harm people’s health, according to the Environmental Protection Agency. States and municipalities are cleaning up sites involved in the manufacture of the chemicals, while governments are pursuing liability suits seeking money from producers.
DuPont stock is up 7.7%. Chemours and Corteva shares have gained 24.3% and 4.1%, respectively. The moves have added about $5 billion in market value to the three companies. The change in Chemours is larger because it has the smallest market capitalization of the three by far.
Chemours will contribute about 50% of the money. DuPont will contribute about 34% to the fund, with Corteva contributing about 16%.
The settlement doesn’t cover personal-injury litigation or litigation from state attorneys general. Still, the market is happy because there is some certainty on part of the liability and because the settlement is nine figures and not 10 figures.
3M (MMM) appears to have larger PFAS liabilities than any of the DuPont-related companies. Bloomberg reported Friday that 3M was in talks for a similar settlement in the range of $10 billion. 3M declined to comment to Barron’s on the report.
3M stock is up 8.5%, which adds about $4 billion in market value to the stock.
3M has been dogged by legal woes for years. Wall Street estimates for the total litigation overhang in 3M stock is in the range from $30 billion to $40 billion. Analysts typically arrive at those estimates by taking a fair price-to-earnings ratio for 3M stock, based on history, working out the market capitalization of the company based on that ratio and then comparing that capitalization to the current market cap of about $56 billion.
It is only a rough guide, but a useful one for investors to keep in mind.
3M stock currently trades at about 10 times estimated 2024 earnings, nearly half the
S&P 500
multiple of 18 times estimated 2024 earnings. Before recent legal problems, shares would trade at or above the S&P 500 multiple.
Along with PFAS, 3M also faces liabilities from potentially faulty ear plugs sold to the military. So while the PFAS settlement is a positive, some outsize legal risk remains for the maker of Post-it Notes.
Write to Al Root at [email protected]
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