Back to top

Analyst Blog

Shares of Ecolab Inc. (ECL - Analyst Report) reached a 52-week high of $72.79 on Friday, Dec 7, 2012. The closing price of this dental equipment stock as of Dec 7, 2012 was $72.72, reflecting a solid year-over-year return of 33%.

Growth Drivers

The company’s solid third quarter results, the recent acquisition of Champions Technologies, the divestment of Vehicle Care business, dividend hike and new product launches are jointly driving the stock.

On Oct 30, 2012, Ecolab reported adjusted earnings per share of 87 cents, up 16% from the year-ago earnings of 75 cents per share. Despite the restructuring and integration expenses related to the Nalco merger, profit attributable to Ecolab in the reported quarter climbed 54% year over year to $238 million (or 80 cents per share).

On a fixed currency basis, revenues grew 7% in comparison with the year-ago pro forma fixed currency sales (inclusive of the Nalco operations). Growth was triggered by higher sales from Global Energy, Healthcare, Latin America and worldwide Kay as well as the Pest Elimination franchises.

Moreover, in an effort to expand its Global Energy Services franchise, Ecolab agreed to acquire privately-owned Champion Technologies and its related company Corsicana Technologies. This is Ecolab’s biggest acquisition since the company acquired Nalco in 2011.

The acquisition of Champion Technologies will likely strengthen Ecolab’s market position in North America and help the company benefit from one of the fastest growing industries in the U.S. Following the closure, the company is slated to become a giant in the oilfield chemical business.

Further, as the company gains competitive advantage and makes headway in the energy market, the divestment of its underperforming Vehicle Care division will allow it to direct resources and focus on high growth avenues. In December, Ecolab successfully completed the sale of its Vehicle Care division to Atlanta, Georgia-based Zep Inc. (ZEP - Snapshot Report) for roughly $120 million in cash.

Recently, the company has increased its quarterly cash dividend to 23 cents from 20 cents, representing a 15% growth. This is the company’s 21st consecutive annual dividend increase, which reflects its commitment to deliver incremental returns to investors by leveraging its solid free cash flow and strong earnings.

New innovative products such as the latest range of the USDA BioPreferred and Green Seal certified bio-based hard surface cleaners, along with the KAY Filter Pouch Cleaner and the Greaselift non-corrosive and biodegradable kitchen degreasing solution are slated to drive segment sales.

Earnings Estimate Revision

For fiscal 2013, the Zacks Consensus Estimate rose by 2.3% over the last 60 days to $3.59 per share, implying year-over-year growth of 20.31%.

Valuation

The company currently trades at a forward P/E of 24.4x, a 56.2% premium to the peer group average of 15.62x. The price-to-book ratio of 3.50x represents a 12.9% premium to the peer group average of 3.10x. Given Ecolab’s strong business fundamentals, the premium is justified.

Ecolab has a trailing 12-month ROE of 13.5% compared with the peer group average of 18.0%.

About the Company

St. Paul, Minnesota-based Ecolab serves the food service, food and beverage processing, healthcare, energy, water treatment and hospitality markets in the U.S. as well as internationally. The company continues to invest in strategic areas such as health care, food, water and energy and global pest elimination to expand its business.

Although we are impressed by Ecolab’s strong international exposure, we remain cautious about currency fluctuations and aggressive competition from the likes of The Clorox Company (CLX - Analyst Report) and Church & Dwight Co. Inc. (CHD - Snapshot Report). Sluggish European markets and raw material price inflation also remain headwinds.

We currently have a Neutral recommendation on Ecolab. The stock carries a short-term Zacks #3 Rank (Hold rating).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UNITED THER… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%
STRATTEC SE… STRT 80.24 +3.00%