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3M earplug lawsuit judge pushes MMM veterans to negotiate settlement before issuing ruling

By Jenal Mehta

12:57, 4 November 2022

3M office building
Will 3M file for bankruptcy? – Photo: ShutterStock.

The largest lawsuit in US history continues to unfold as the Judge issues a new ruling for 3M (MMM) plaintiffs.

The healthcare and goods company had been involved in a lengthy lawsuit since 2018, with the US military accusing the company of knowingly selling defective earplugs.

Judge Casey Rodgers, who is overseeing the pre-trial consolidated cases of more than 230,000 plaintiffs, has now said that settlement talks must resume.

3M (MMM) stock has seen slight relief in the past month despite the court cases working against the company, its price rallied 6% higher, which is about 8 % higher than the S&P 500 (US500) performance.

3M (MMM) Price Chart

In 2008, the US military signed a contract with 3M (MMM) to supply combat earplugs. These would be produced via the newly acquired Aearo subsidiary of 3M.

By 2015 the contract was terminated due to the ineffectiveness of the product.

It wouldn’t be until 2018, that the first case was filed against 3M by a whistleblower. This case was settled by the company for $9.1m.

By March 2019, there were hundreds of personal injury claims which formed a class action lawsuit against 3M.

A few cases were chosen for the trials which were scheduled for the spring of 2021. 3M lost a majority of these cases, costing them more than $300m so far.

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S&P 500 (US500) Price Chart

By 2022, the remaining cases were moved to phase 2, where the plan was to have them go through pre-trial discovery. This will be done in local state courts rather than on a federal level.

One such case was recently lost by 3M, and the Judge awarded an ex-Green Beret $50m in damages.

US500

5,262.20 Price
-0.830% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.8

HK50

18,419.20 Price
-1.540% 1D Chg, %
Long position overnight fee -0.0233%
Short position overnight fee 0.0013%
Overnight fee time 21:00 (UTC)
Spread 30.0

US30

38,211.80 Price
-1.620% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 2.2

US100

18,724.90 Price
-0.790% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 1.8

The process has not always been in favour of the plaintiffs, some 20,000 have been thrown out so far due to individuals not filing the correct paperwork.

This week Judge Rodgers ordered that monthly settlement talks will have to continue, which is not necessarily the best case for plaintiffs as there is very little incentive for 3M to conclude these settlements soon, especially without new trial dates.

Can 3M (MMM) survive as a company?

There is expectation that any company undergoing such a large scale and expensive litigation is likely to face bankruptcy, Aearo Technology has already made the filing.

But 3M has kept up strong financials which may allow it to avoid going down the same path. In which case, it makes it a good investment for the long term.

In its most recent quarterly earnings, the revenue decreased by 2.8% but it was in line with expectations. It had an organic growth of 1%. Most of its divisions grew, including transport and industrial products.

The biggest growth occurred in its healthcare division, a total increase of 4.4%, and this was possibly the prompt for 3M to declare it will be spinning off its healthcare division into a separate company.

Nathan Parsh, an analyst at Sure Dividend comments on why he holds a buy rating on the stock

“3M is not recession proof, but the company has proven itself to be resilient during the difficult times in the economic cycle.”

“3M is expected to return 15.1% annually through 2027, down slightly from our previous estimate of 15.7%. The projected return stems from a 5% earnings growth rate, a 4.2% dividend yield, and a high single-digit tailwind from multiple expansion.”

“We have lowered our 2027 price target $11 to $256 due to earnings guidance, but reiterate our buy rating on shares of 3M due to projected returns.”

Markets in this article

MMM
3M
97.74 USD
-1.11 -1.130%
US500
US 500
5262.2 USD
-44 -0.830%

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