Al Root

Earlier this week, 3M agreed to a nearly $300 million settlement related to water pollution and forever chemicals known as PFAS.

Environmental damage and big legal settlements often spook investors. This deal was good news, though. It was far smaller than one Wall Street analyst expected.

PFAS are a group of chemicals produced by a handful of companies, including 3M, that have been found in water supplies. In 2023, 3M and others settled with U.S. water suppliers, providing funds for PFAS remediation and testing. The agreement had a present value of $10.3 billion and was payable over 13 years.

That settlement helped investors understand the magnitude of PFAS costs faced by the company. Still, 3M faces litigation around the world and in the U.S. (PFAS disclosures take up several pages of 3M's financial filings.)

Monday, 3M announced a settlement with New Jersey. The agreement is worth about $285 million, according to the company, which said it was "not an admission of liability." The payments stretch over 25 years.

"Investors do not fully recognize the implication of the PFAS settlement with the state of New Jersey...and the NJ settlement on the broader Natural Resources damages multi-district litigation," wrote BofA Securities analyst Andrew Obin on Wednesday.

He modeled $11.5 billion for natural resource settlements. That was based on about $17 a person. The New Jersey settlement implies closer to $7 a person, adding, "NJ has been one of the most aggressive litigants and has some of the highest PFAS exposure in the country."

The $17 to $7 decline is almost 60%. Investors can think of it as a $6.8 reduction in liability projected by Obin, who rates 3M shares Buy and has a $170 price target for the stock.

3M stock was up 0.3% in Thursday trading, while the S&P 500 and Dow Jones Industrial Average were up 0.4% and 0.3%, respectively. Gains left shares up almost $6 for the week. That's worth about $3.2 billion in market value, or about half of the potential gain implied by Obin's math.

There isn't a hard and fast rule about how investors should react to litigation. Knowing the settlement is a positive is good enough for now.

Write to Al Root at allen.root@dowjones.com

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May 15, 2025 14:10 ET (18:10 GMT)

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