3M Shares Jump As Litigation Payout On Defective Military Earplugs Viewed Favorably By Analysts

Tyler Durden's Photo
by Tyler Durden
Monday, Aug 28, 2023 - 11:45 AM

3M shares gained in premarket trading in New York after Bloomberg reported the company "tentatively agreed" to pay $5.5 billion to settle the largest mass tort in US history, with 300,000 lawsuits by veterans that claim earplugs made for combat failed to protect them from hearing loss. 

Under the discussed terms, people familiar with the settlement said 3M would pay $5.5 billion, resolving the massive lawsuit overhang, which is half of the $10 billion some Wall Street analysts predicted. Shares are up 6% because of this. 

"Sounds like 3M negotiated a pretty good deal for itself, given this litigation has been weighing on them for the better part of a decade," Carl Tobias, a University of Richmond law professor who teaches about product liability cases, told Bloomberg. 

Bloomberg Intelligence projected the possibility that 3M would have had to pay out around $9.5 billion, whereas Barclays analysts estimated $8 billion. 

Commentary from Wall Street analysts was favorable regarding the smaller settlement (list provided via Bloomberg): 

Citi (Neutral, PT $111) 

  • The potential settlement is smaller than some investors expected, analyst Andrew Kaplowitz writes in a note; could mark another step in 3M alleviating its legal burden and moving away from litigation noise that has been weighing on the valuation and could be received favorably by investors
  • Notes 3M still faces uncertainty regarding its per- and polyfluoroalkyl substances related exposure

RBC (Underperform, PT $100)

  • News of any settlement is typically initially seen as good news, since it represents some tangible progress toward resolving what is still expected to be a long litigation road ahead for 3M along multiple fronts, writes analyst Deane Dray
  • Positive stock reaction is due to a combination of slightly lower than expected settlement figure and a positive reaction associated with the potential alleviation of one of its two legal headwinds

Bloomberg Intelligence (No rating) 

  • Analysts including Joel Levington say, "3 M's $5.5 billion agreement to resolve 300,000 lawsuits over military earplugs, as reported by Bloomberg News, may not stop the A2/A- rated company's ratings from being downgraded further"

Bloomberg noted, "3 M's board still must sign off on the deal." And comes as the company faces thousands of other lawsuits over PFAS "forever chemicals."