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Concerns about the health effects from PFAS are mounting, and efforts to ban the chemicals are gaining traction. These companies are profiting from the cleanup.

When Teflon cookware hit the market in the early 1960s, it was hailed as a modern chemical marvel and a big win for home cooks: Eggs slid effortlessly off “happy pans”; cleanup dispensed with the drudgery of scrubbing.

Teflon pans are still sold, but one of the original chemicals is long gone due to concerns about its health effects. Today, the big money isn’t in making those “forever chemicals,” a broad class of substances known as polyfluorinated substances, or PFAS. Rather, it’s in cleaning them up—an effort that could cost more than $200 billion.

Manufactured by companies such as DuPont spinoff Chemours and 3M, PFAS are a class of thousands of chemicals that have been used for decades in consumer and industrial goods. Dubbed forever chemicals for their remarkable stability, they can resist water, stains, grease, and heat. That has made them ideal for food packaging in everything from pizza boxes to microwave popcorn bags. They’re also used in thousands of products from carpeting to firefighting foam.

Now, concerns about their health effects are mounting, and efforts to ban the chemicals are gaining traction.

Europe has taken the lead in proposing a blanket ban on PFAS, made up of chains of carbon and fluorine linked together. The U.S. is also making progress. The Food and Drug Administration recently announced that grease-proofing PFAS in food packaging is being phased out. PFAS manufacturers such as 3M are also phasing out the chemicals. And new rules are expected soon from the Environmental Protection Agency to vastly reduce PFAS in drinking water.

Yet companies still face massive liability claims. While DuPont, 3M, and other manufacturers have already paid out billions in settlements, a wave of corporate liability continues to build. Some landfill operators and wastewater companies could also be on the hook for cleanups and liability as new federal rules ramp up.

Settlements could reach hundreds of billions, putting PFAS in range of the $206 billion tobacco settlement of the 1990s, according to a recent report by BofA Securities analyst Dimple Gosai. “PFAS is a risk everyone needs to hear about now,” she says.

A handful of companies, meanwhile, are profiting as demand rises for testing, monitoring, and remediation. Companies that could benefit, according to analysts, include Aecom, Montrose Environmental Group, Republic Services, and Xylem.

Phaseout Push

While efforts to ban PFAS have percolated for years, they are gathering steam due to mounting concerns about the chemicals’ toxicity. The substances don’t break down, accumulating in soil and water, and they have been found in the bloodstreams of nearly every American. Long-term exposure has been linked to some cancers, including kidney and testicular cancer, fertility and thyroid problems, and other health effects.

“Manufacturers used carbon-fluorine chemistry because it was so stable,” says Tarun Anumol, director of global environment and food markets at Agilent Technologies, a laboratory technologies company that makes instruments for measuring and analyzing the chemicals. “It is coming back to haunt us.”

Manufacturers have already paid out billions in liability claims over the chemicals. 3M, DuPont, and two other companies agreed to class-action settlements of more than $11 billion last year.

But some states and municipalities are seeking to reopen the settlements, while other lawsuits go forth. A class action filed in September by Dutch lawyers against DuPont and Chemours accuses them of decades of pollution at a plant south of Rotterdam. Late last year, the city of Wausau, Wis., filed a suit against 15 manufacturers and 61 insurance companies alleging contamination of the groundwater.

“Unlike asbestos and tobacco, PFAS touches almost every segment of humanity; it is in all of us, it’s even in the polar bears,” says attorney Michael London with law firm Douglas & London, who is leading several of the class action cases.

3M said the 2023 settlement wasn’t an admission of liability but CEO Mike Roman called the agreement “an important step forward” for the company. DuPont and its spinoffs Chemours and Corteva have said they “deny the allegations in the underlying litigation.”

Some types of PFAS were eliminated decades ago, but manufacturers are now phasing out more. 3M says it will stop making PFAS by the end of 2025 and recently told investors that manufacturing volumes are down 20%, citing “very good progress.” DuPont says it has phased out long-chain PFAS and replaced PFAS in firefighting foams with alternatives.

Other companies are getting rid of the chemicals too. Restaurant Brands International, which owns Burger King, Popeyes, and Tim Hortons, said it would ban PFAS in food packaging globally by 2025. Outdoor gear retailer Patagonia has pledged to eliminate PFAS across its entire product line by 2025.

Completely eliminating PFAS isn’t likely, however, because they remain essential to some types of manufacturing. Cutting PFAS out of microchip production, for example, would require manufacturers to come up with a whole new class of chemicals and revamp production processes.

Contaminated drinking water remains a problem. Nearly half of the nation’s tap water is estimated to have one or more types of PFAS. Contamination has come from decadeslong use of PFAS in firefighting foam. The chemicals have also leached into water supplies from landfills, wastewater-treatment plants, and manufacturing sites.

The European Union is now considering a ban on the production and import ation of around 10,000 PFAS across the bloc, with a possible vote in 2025. In the U.S., the EPA has proposed rules that would require water utilities to filter out certain PFAS. Ten states have established enforceable stands on PFAS in drinking water, while 13 more have adopted guidance levels, according to Safer States, an environmental advocacy group.

The EPA is also expected to designate PFAS variants, PFOA and PFOS, as “hazardous substances” under the Comprehensive Environmental Response, Compensation, and Liability Act, or Cercla, informally known as the Superfund bill, sometime this year. This would give the agency more authority and tools to hold polluters accountable for cleaning up contamination and recover costs from responsible parties. In February, the agency proposed adding nine PFAS to its list of “hazardous constituents.” The rule is in a comment period through April 8.

Billions of dollars are flowing for cleanups. Congress has set aside $9 billion to address PFAS-contaminated drinking water. Analysts say new regulations and federal funding along with consumer awareness and more lawsuits will boost demand for testing and remediation.

It will be a Herculean task. A recent study found that 57,412 sites across the U.S., including 519 major airports, are likely contaminated with PFAS. Global Infrastructure consulting firm Aecom pegs the U.S. remediation opportunity at around $200 billion and the global market at $250 billion. “Without a doubt, the regulatory setting provides the tailwind,” Lara Poloni, Aecom president, tells Barron’s.

Companies involved in cleanup efforts span three broad areas: testing and removing PFAS from drinking water; remediating soil and landfills; and providing consulting services, including assessing regulations and compliance risk. While there aren’t many pure-play companies, several firms provide testing, monitoring, and remediation services as part of a broader business.

On the water side, proposed EPA rules set the bar for PFAS incredibly low. The EPA wants a limit for PFOA and PFOS at four parts per trillion each in public drinking-water—equivalent to one drop in six Olympic-size pools, according to Agilent’s Anumol. That is far lower than the EPA’s maximum level for arsenic in drinking water at 10 parts per billion.

The American Water Works Association, an industry trade group, estimates that at least 5,000 water utilities will have to install advanced treatment systems or find new water sources, while an additional 2,500 will need costly overhauls or upgrades to filtration systems. According to a report commissioned by AWWA, water utilities will need to invest more than $50 billion in treatment technology over the next 20 years to comply with new PFAS standards. If PFOA and PFOS are designated hazardous substances, it could add $3.5 billion a year in disposal costs.

Deane Dray, a managing director at RBC Capital Markets, says Xylem is his top pick in the water sector. Last year the firm acquired Evoqua, a leader in remediation of emerging contaminants, including PFAS. Xylem has worked with municipalities across the country and offers a variety of PFAS treatment technologies, including granular activated carbon, or GAC, which is like a giant Brita filter for municipal systems, notes investment banking firm William Blair in an extensive report on forever chemicals published last year.

“PFAS is going to be one of the growth drivers for the company,” Dray says. “The floodgates will open with [water] utilities that are going to raise their hand and say ‘we are over the limits, we need help, we need remediation.’ ”

Xylem—a Barron’s stock pick in 2023—will be a winner, says Dray, because “there will be more demand over the near term than the industry can satisfy.” The company is expected to book sales of $8.5 billion in 2024 with $988 million in net income, up 20% from last year.

Shares trade around $128, up 12% this year. At a price/earnings ratio of 27 times 2025 earnings, it looks pricey and will have to live up to growth forecasts. Dray says the high multiple is warranted, partly because of a tailwind from PFAS services; he sees the stock reaching $145 over the next year.

On the waste removal side, there’s “an arms race” for companies to safely transport or destroy PFAS on contaminated sites, says Dray. After the chemicals have been separated from the water, the hazardous material has to go somewhere, and burning or burying is problematic. PFAS that are incinerated can rejoin air and burying may not stop them from leaching into groundwater; incinerating is energy-intensive and can release harmful chemicals into the environment.

One company with a promising PFAS destruction offering is privately held Aclarity. CEO Julie Bliss Mullen says the company has developed a very low-energy system that uses electrochemical oxidation to break PFAS bonds on-site, preventing the concentration and movement of PFAS from landfills and other sites. Dray says Aclarity is the farthest along with a scalable solution to destroy PFAS. “Even though it’s a private company, investors should be keeping an eye on where this company is going,” he adds.

One of its rivals for on-site destruction is Aecom, which has been tackling PFAS for more than two decades. Aecom’s technology, called De-Flouro, destroys the compounds in industrial waste and water through electrochemical oxidation. The company says PFAS water services account for 1% of revenue but over the next ten years it believes it will “benefit from $10 billion of PFAS gross revenue opportunity,” according to Poloni, with the vast majority of revenue coming from its consulting services.

Aecom’s revenue is estimated at $15.6 billion this year, and shares trade for 17 times 2025 earnings, a roughly 15% discount to the market, based on consensus estimate. The stock also looks inexpensive with a price to earnings-growth (PEG) ratio of 1. According to FactSet, analysts on average see the price rising to about $105 over the coming year, from recent prices around $90, for a gain of about 16%.

Another way to play the cleanup opportunity is Montrose Environmental. The company sells testing, monitoring, and environmental consulting services, including a business for PFAS. CEO Vijay Manthripragada says the firm has developed unique ways and patents to remove and concentrate PFAS waste. “We help prevent the need to actually transport, bury, or burn the waste. That’s been really compelling for a lot of our industrial clients,” he explains.

PFAS remediation services should make up about 12% of Montrose’s $700 million in projected revenue this year. Tim Mulrooney, lead analyst for global services at William Blair, sees it as a major growth driver, expecting it to be “several multiples” of current revenue in a few years. “My investment thesis is simple,” he explains. “Montrose is small. The PFAS market is going to be very, very big. And Montrose has a better mousetrap for certain applications.”

One opportunity lies in a push to eliminate heavily contaminated sites where PFAS could be as high as 2,000 or 3,000 parts per trillion, says Mulrooney. That’s where the company’s technology “really shines,” he says, “and where I think Montrose has a leg-up against many competitors.”

Another fan of the stock is Randy Gwirtzman, portfolio manager of the small-cap Baron Discovery mutual fund. Montrose is a “one-stop shop” because it covers the full spectrum of services, he says. “Montrose fit the mold of what we like: a strong management team, strong organic revenue growth in a fragmented industry that can be consolidated, leading to higher overall growth,” says Gwirtzman.

Waste removal could see higher demand, benefiting Republic Services. The company mainly does recycling and solid waste removal, but it also owns five hazardous-waste facilities that could benefit from PFAS cleanup. It acquired an environmental solutions company, US Ecology, in 2022. “That put us from the back seat into the driver’s seat in terms of taking care of [PFAS],” says Jon Vander Ark, Republic’s CEO.

Republic doesn’t break out PFAS services as a revenue segment, and it remains a small part of the firm’s estimated $16 billion in sales this year. But Vander Ark says there’s a “good pipeline in 2024,” fueled by corporate demand for cleanups ahead of new EPA rules, and some Defense Department work. “This year it will be comfortably in the nine figures and we think over time it could be a billion-plus dollar opportunity,” he tells Barron’s.

Other growth drivers for Republic include renewable gas projects, environmental services, and digital platforms to improve productivity and margins.

It all makes for an expensive stock at 31 times estimated earnings of $5.99 per share in 2024. And Republic has already notched big gains, including a 43% rise last year. But the stock has long been pricey while managing to outperform the S&P 500 by an average 4% over the last five years. Helping get rid of forever chemicals could keep Republic shares moving up.