UBS upgraded 3M to Neutral based on the company’s potential legal liability valuation



UBS changed its rating on 3M (NYSE:MMM) from Sell to Neutral and claimed that the industrial conglomerate’s legal responsibility is reflected in the share price. In contrast to the average expectation of $2.68, the bank cut its EPS forecast for the third quarter from $2.74 to $2.60.

Investors have made an effort to calculate the potential cost of 3M’s legal liabilities. The business is the subject of thousands of lawsuits alleging that their military-grade earplugs are to blame for hearing loss. The company 3M, widely known for producing Post-It Notes and Scotch tape, may be liable for billions of dollars in legal fees or settlements with soldiers who claim the earplugs caused their hearing to deteriorate when they returned from combat.

Another potential cost is from 3M’s previous production of PFAS, or perfluoroalkyl and polyfluoroalkyl chemicals. In compliance with the federal Superfund law, the Environmental Protection Agency requested this month that two of the chemicals be labeled as dangerous. 3M created PFAS for goods like Scotchguard, a coating to make clothes water-repellent.

According to Chris Snyder, an analyst at UBS, “our math implies the market is now integrating a $40 billion or more liability into the stock valuation.” Conversely, the upside will probably be limited because of the significant, ambiguous, and undetermined litigation overhang.

Market Outlook

Shares of 3M Company have lost 32% so far this year as a result of MMM’s revised FY 2022 management outlook, disappointing investors, and unfavorable events involving claims.

The successful spin-off of the healthcare company and a positive change in investor tastes and styles are the two probable catalysts for MMM.

After weighing the potential catalysts and the company’s unattractiveness as a prospective long-term investment, I continue to maintain a Hold rating for 3M Company. More on 3M stock here.

Featured Image – Megapixl © Zuamir

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