3M stock (NYSE: MMM) has seen a 7% fall in a month, compared to a 3% fall for the broader S&P500 index. However, 3M stock rose 5% on August 28 after the media reports about the company nearing the settlement of its earplugs lawsuits emerged. In the longer term, 3M stock is down 41% from levels seen in late 2019, far worse than the S&P 500 index, up around 35%.
Interestingly, MMM stock had a Sharpe Ratio of -0.3 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
This 41% decline for MMM stock since late 2019 can primarily be attributed to 1. the company’s P/S ratio falling 45% to 1.7x revenues vs. 3.2x in 2019, partly offset by 2. a 4.4% fall in its total shares outstanding to 552 million and 3. 3M’s revenue growth of 3% to $33 billion over the last twelve months, compared to $32 billion in 2019. This has meant that the company’s revenue per share metric has risen 8% to $59.88 now, compared to $55.66 in 2019. Our dashboard on Why 3M Stock Moved has more details.
3M’s revenue rose from $32 billion in 2019 to $35 billion in 2021, as the Covid-19 outbreak resulted in a very high demand for personal protective equipment. The company’s overall revenue growth was also driven by higher price realization and strong consumer demand. But this trend reversed in 2022, with a decline in respirator demand, supply-chain disruptions, high inflation, a strengthening dollar, and slowing economic growth.
The ongoing litigation was weighing down 3M stock. One of them alleging that its earplugs caused hearing damage for more than 300,000 veterans. 3M earlier tried to resolve the claims through the bankruptcy of its subsidiary – Aearo Technologies – which originally made those earplugs. However, a bankruptcy court rejected 3M’s bid to stop the cases against the parent company. Furthermore, late last year, a Florida judge prohibited 3M from attempting to escape responsibility for injuries incurred by its allegedly defective earplugs. The recent media reports state that the company may be close to settling the allegedly faulty earplugs litigation for around $5.5 billion, which is much lower than the $10 billion to $15 billion some analysts had earlier predicted. [1]
The other litigation that has weighed on 3M’s stock is about the legacy manufacturing of per-and polyfluoroalkyl substances chemical compounds, also known as “forever chemicals” because they break down slowly in the environment. The company is facing lawsuits over claims that contaminated soil and drinking water led to health problems in some communities. Note that 3M has announced that it would cease all production of PFAS by the end of 2025. The company reached a tentative settlement in June 2023 to settle its forever chemicals lawsuits for $12.5 billion. [2] Overall, the amount 3M will spend to settle its litigations appears much lower than anticipated, boosting its stock on August 28.
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