🏭​​ Are 3M’s Liabilities Overshadowing Its Growth?

More US citizens take the sky; Google's unlawful monopoly.

Hey Global Investor! Here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Wednesday’s Close) 4,358.13 +14.59 (0.34%)

NASDAQ (Wednesday’s Close) 14,665.06 +1.42 (0.01%)

FTSE 100 (4:30 PM IST) 7,025.29 -125.73 (1.76%)

NIFTY 50 (Today’s Close) 15,727.90 -151.75 (0.96%)

USDINR (Today’s Close) 74.85 (1 Year -0.76%)

🔥 Top Movers

NEGG +148.42%
SGH +17.81%
BHVN +13.56%

IDYA -20.29%
ACMR -13.89%
NVAX -13.67%

​🏭​​ 3M: Liabilities Or Growth?

Shares of industrial conglomerate 3M Co. (MMM) have risen 17% this year. Things might have looked rosy for the company given the pandemic seems to be under control. However, two lingering liabilities and conservative management might be keeping a lid on 3M’s growth prospects. (Tweet This)

Of PFAS And Earplugs

3M has been acknowledged as one of the most innovative companies on the planet. This manufacturer of everything from post-it notes to Scotch-Brite and industrial products had a long-standing policy of letting employees take 15% of their work time to tackle pet projects. In fact, Google borrowed this idea when instituting its 20% work on personal projects policy for its employees.

PFAS: Polyfluoroalkyl substances are used in everything from food packaging to construction material to household products. PFAS is known as the unbreakable molecule – it does not degrade over time. While its uses are plenty, it pervades the planet so completely today that it has made its presence felt everywhere including groundwater, soil, the human body, animals – name it.

With the Environmental Protection Agency raising a red flag, 3M phased out PFAS back in the early 2000s. Yet, the manufacturing sites continue to be contaminated. In Q1 2019, 3M took a $548M litigation charge including $235M for lawsuits related to PFAS followed by a $17M charge in Q1 2020. Cleanup costs and compensation for impacted families near these plants are as yet unknown.

Earplugs: 3M also makes the foam and related material that is used in earplugs. The earplugs are heavily used in the military in order to protect the personnel who are working with ordnance and operating in high-decibel environments.

In 2016, Moldex-Metric Inc., a company that makes respiratory and hearing protection products sued 3M and its subsidiary Aearo Technologies for selling defective material that went into products to be used by the military. 3M settled the allegations in 2018 by paying $9.1M and admitted to no wrongdoing.

Just as 3M executives were breathing easy (no pun intended), the company faced litigation from thousands of military men and women who suffered hearing damage after using those earplugs. As of August 2019, 3M and Aearo were defendants in over 2K lawsuits in a Florida Federal court. Last month, a US Army veteran was awarded $1.7M in damages for his hearing loss by a federal jury in Florida.

Management Priorities

Q1 2021 saw the US economy grow at an annual rate of 6.4%. 3M for its part has reported a 10% growth in sales during the same period. However, the company abstained from increasing its guidance for the full year. Its management expects full-year sales growth to be between 5-8%.

Perhaps as a token acknowledgment of the PFAS fiasco, 3M plans to invest over $1B over the next 20 years to accelerate its new environmental goals. It aims to reduce water use by 25% at its facilities and return high-quality water to the environment after manufacturing operations.

Given the potential for liabilities due to lawsuits making their way through the courts, the unknown quantum of PFAS cleanup costs, and management’s unwillingness to be more bullish, 3M’s stock has been downgraded from buy to hold.

The management will do well to focus on business growth rather than legal hassles. However, the reverse seems to be true at this time. While the stock has returned double-digits to shareholders this year, future performance will depend on how the leadership will steer the company away from troubled waters and towards a promising future.

Market Reaction
MMM ended at $199.86, up 1.51%.

Company Snapshot 📈

MMM $199.86 +2.97 (+1.51%)

Analyst Ratings (21 Analysts) BUY 24%  HOLD 62%  SELL 14%

Newsworthy 📰

Surge: American Airlines says it flew three times as many passengers over July 4 Weekend Vs 2020 (AAL -3.33%)

Illegal: US States allage Google unlawfully preserves play store monopoly (GOOG +0.24%)

Nosedive: DiDi plunges below IPO price as China expands crackdown (DIDI -4.64%)

Later Today 🕒

  • Levi’s Earnings (LEVI)
  • Accolade Inc. Earnings (ACCD)
  • PriceSmart Inc. Earnings (PSMT)
  • 6:00 PM IST: Initial Jobless Claims
  • 12:30 AM IST: Consumer Credit

Fun Fact of The Day 🌞

One-third of small businesses rely on credit for financing

Disclaimer: The content of this article has been created and published by Winvesta India Technologies Pvt. Ltd., in order to ease the reader’s understanding of the subject matter. The information and/or content (collectively “Information”) provided herein is general information sourced through various news reports and does not constitute a research report or a research analysis. The Information is not intended to offer advice, target or solicit any particular customer or group of customers to buy or sell securities. 

Winvesta does not render any research or advisory services and provides a more detailed description of its services on its website and mobile application along with the terms and conditions published therein from time to time. While reasonable care has been exercised to ensure that the Information is adequate and reliable, no representation is made by Winvesta as to its accuracy or completeness and Winvesta, its affiliates, subsidiaries and employees accept no liability of whatsoever nature for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this Information. Neither Winvesta nor any of its affiliates are acting as an investment adviser, research analyst or in any other fiduciary capacity. Accordingly, reader’s are expected to undertake their own due diligence in consultation with their own advisors and are advised not to solely rely on the Information. Any such reliance shall be at the reader’s own risk. 

All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.

Start Building Your Global Portfolio Today

Download Winvesta App now to Get Started