Wall Street loves good stories, though they tend to focus on a single topic without taking the time to see the big picture. That`s probably what`s happening with industry giant 3M (MMM 0.76%) these days, as its legal and regulatory issues are getting a lot of attention. Granted, these are significant issues, but they cloud the company`s still-decent underlying results. Let me explain. The negative market sentiment reflects the monumental legal challenges the company has faced since settling an $850 million lawsuit in 2018 for chemical damage to drinking water and natural resources in its hometown, the twin cities metropolitan area. MMM monthly chart 3M stock is down 30% this year and 15% over the past month. Thus, some bad news is already reflected in the share price. But the drama in the courtroom is far from over, and there will likely be many twists and turns in the case that incorporate significant uncertainty into the stock. As the stock market continues to decline, there are many other opportunities for long-term investors to buy shares of large companies at a discount without legal risk. You may want to focus on these rather than 3M. We patient value investors like to look at investments over years and decades, not short-term. Assuming 3M normalizes and continues to build on its long earnings growth roadmap, what are 3M`s shares worth as the company goes through this season of legal uncertainty? Company size: With a market capitalization of over $100 billion, even with significant legal liabilities, the company has the size and size to absorb the negative impact and grow in the future.
The chance to win appeal: The lawsuit is ongoing, and there is no doubt that armies of lawyers are active on all sides of the argument to defend clients. It is possible that 3M will prevail in future appeals or at least change financial decisions. For investors, these legal challenges mean very little transparency about the magnitude of the costs of these lawsuits, which could take years to reach a conclusion. Net income for the second quarter, which ended June 30, fell to $78 million from $1.5 billion a year ago after the company charged a pre-tax charge of $1.2 billion to resolve earplug lawsuits. But now, the recent price drop raises the question: is the legal uncertainty temporary and is it time to consider buying/increasing positions? This legal headwind and the company`s complex structure have contributed to the continued underperformance of 3M shares over the past five years, with the stock plunging 45%. In a Investing.com survey of 22 analysts, St. 3M, based in Paul, Minnesota, has only two buy recommendations.3M Consensus estimates This amount could be used to pay down debt or buy back shares, but this favorable path for shareholders becomes difficult after legal setbacks, potentially forcing the company to maintain a larger reserve fund to make future legal arrangements. Another risk 3M investors face is the company`s annual dividend of $5.96 per share. The rise in 3M`s stock yield, which is now above 5 percent, suggests the company could be forced to reduce its payment bill, which is about $4 billion a year, if legal liabilities rise and the company needs to raise cash. The biggest risk to this assessment is certainly legal exposure to earplugs and PFAS chemical claims. Jury decisions that go far beyond what is expected could make a big difference in future returns.
What is known is that 3M has a proven track record of earnings growth and other fundamentals over the past decade or more, and that with sufficient time, legal uncertainties will eventually be resolved. Undoubtedly, the result could be very unfavorable. But the issue will be resolved anyway. The legal situation weighed on the share price, as shares fell more than 17% over the past month. The 3M conglomerate faces some legal risks to its shares. 3M recently filed for bankruptcy of a division that is bankrupting earplugs. The hope is that this decision will help limit the cost of product liability litigation the company faces over earplugs and their use by the U.S. military. Before everything is settled, the litigation will likely cost billions of dollars.
As part of the bankruptcy, 3M has already set aside $1 billion to pay potential claims. While it is hoped that this decision will help protect the parent company from any additional legal liability, it is far from clear at this stage whether the effort will go as hoped. The profit drivers are intact – regardless of the legal uncertainties: Covid and variants of Covid and other infectious diseases will continue to be a major concern for employers, governments and individuals. 3M is well positioned in the field of personal protective equipment to meet this need. Diabetes and chronic diseases are on the rise worldwide. These medical issues create a demand for improved medical associations and medical software to improve case management. And product lines for industrial adhesives and tapes are likely to have tailwinds in the future as companies redesign their processes and innovate in the new environment. These trends, combined with 3M`s legal patent protection, bode well for the long-term viability of profits. The recent sell-off in MMM shares suggests that this industrial giant is in great trouble that is far from over.
While the restructuring move is encouraging and could leave the parent company with a lot of money, now is not the right time to bet on the name, especially if litigation escalates and the economy takes a turn for the worse. Today, 3M faces current legal uncertainties that weigh on its share price. If this issue isn`t on your radar, the company received a $110 million verdict by a jury in Florida in late January over concerns about earplugs and alleged damage caused by defective products. The 3M conglomerate faces some legal risks to its shares. Investors` approach has been to sell first and ask questions later, and Wall Street can`t resist that reaction. There is no doubt that legal uncertainty poses significant short-term challenges to 3M`s management. Investors are rightly wondering how to account for potential liability risks and what that means for 3M`s future earnings. 3M is grappling with a web of legal issues, outside of the inflation and economic downturn that everyone is experiencing. At an investor conference, the company`s chief legal officer asserted that Aearo`s Chapter 11 was not an attempt to avoid liability with respect to the earball, but rather an attempt by the company to effectively compensate claimants. On Friday, Judge Jeffrey Graham of the U.S. Bankruptcy Court in Indianapolis essentially denied an attempt by 3M to take legal responsibility for defective earplugs sold to the military by a subsidiary of 3M (symbol: MMM) in bankruptcy court. This would have limited the amount of payments from the earplug dispute.
After hearing closing arguments from both parties, the jury deliberated again after lunchtime on Friday, November 12. At 3 a.m., the jury submitted a question to the judge. At 5:30 a.m., the jury ruled that Palanki had not proven any of his allegations against 3M and issued a defense verdict. This was comparable to damages awarded in previous landmark cases. We understand that investors don`t waste time knowing the unknowable. Frankly, no one knows how jurors will react in future 3M trials, and no one knows the outcome of future appeals. Zoom stock is under pressure after the company reported its weakest quarterly revenue growth since records began. You can call any lawyer who specializes in 3M earplugs.
Not just us. It is important that you call today so that you do not risk missing the deadline for a lawsuit. If you do not comply with the limitation period, you will not be able to obtain compensation for the damage caused to you. Prague, Czech Republic – May 22, 2017: 3M stock could offer an opportunity josefkubes/iStock editorial via Getty Images 3M stock is just down If you have a potential 3M earplug lawsuit and haven`t filed a lawsuit, call a lawyer. You can call our lawyers at 800-553-8082. Aearo and 3M said they would appeal the refusal. Meanwhile, members of the service won 13 of the 19 cases that went to court before Aearo filed for bankruptcy. In the losing cases, plaintiffs received $265 million in personal damages, and there are still 230,000 veterans on the list. If these cases indicate contributions to the remaining claimants, 3M`s $1 billion trust could be significantly underfunded. Regardless of the immediate headlines, the key to my bar is evaluation. At current prices, 3M is available at an attractive entry point based on the company`s historical standards, size and market position. The bankruptcy of its subsidiary, Aearo Technologies LLC, the maker of the earplugs, would have limited total liability to about $1 billion.
But in the wake of that verdict, 3M still faces other jury verdicts in the earplug cases, which, according to a Wall Street Journal report, brought in $265 million in damages compared to 3M in the few that went to court. The most shocking aspect of Camarianlorazo`s verdict was the fact that the jury found that 3M acted with “fraud, malice or gross negligence” and awarded $12,245,925 in punitive damages. This is the second landmark trial to result in punitive damages. At the first trial, the jury awarded 3M $7.3 million in punitive damages, but this was divided among 3 plaintiffs. This equates to an average of $4.9 million per applicant.