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3M (NYSE:MMM) jumped nearly 5% in Friday’s trading, bouncing off its lowest levels in 21 months, perhaps helped by a court ruling that upheld Johnson & Johnson’s request to use the bankruptcy process to help settle lawsuits related to its talc products pending against the company.
Like J&J, 3M faces significant litigation linked to PFAS chemicals it once manufactured that have leaked into ground water and to faulty earplugs sold to the military, and Al Root at Barron’s believes the J&J settlement might help to narrow the possible range of outcomes related to 3M’s PFAS litigation.
The subsidiary bankruptcy vehicle “may allow U.S. companies to ring-fence/put a lid on payouts to matters relating to [some legal] liabilities,” Barclays analyst Julian Mitchell writes, naming 3M as the company under his coverage most affected by the J&J court ruling.
Mitchell recently said PFAS liabilities could knock $10B from 3M’s valuation; among other analysts, RBC’s Deane Dray has said the PFAS overhang in 3M shares could reach $20B-$25B.
“We would be surprised if [3M] does not at least explore such a move eventually,” Mitchell says.
Saying investors likely were underestimating 3M’s likely hit from ongoing lawsuits, Morgan Stanley last week downgraded the stock to a Sell-equivalent rating.