Ecolab Inc. (ECL Quick QuoteECL - Free Report) has been gaining from its focus on research and development (R&D). The optimism, led by a solid first-quarter 2024 performance, along with its solid product portfolio, is expected to contribute further. However, concerns arising from cost fluctuations and the possibility of unsuccessful integration persist.

This Zacks Rank #2 (Buy) stock has rallied 23.3% year to date against the industry’s 19.7% decline. The S&P 500 Composite has increased 14.6% during the same time frame.

The renowned water, hygiene and infection prevention solutions and services provider has a market capitalization of $69.68 billion. It projects 12.1% growth over the next five years and expects to maintain a strong performance going forward. Ecolab’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 1.3%.

Let’s delve deeper.

Focus on R&D: Ecolab’s R&D program primarily covers the development and validation of the performance of new products, processes, techniques and equipment. This improves the efficiency of the existing products and service program content and evaluates the environmental compatibility of products and technical support.

Management believes that continued R&D activities are critical to maintaining its leadership position within the industry and should provide it with a competitive edge as it seeks additional business with new and existing customers.

Solid Product Portfolio:Ecolab’s solid product portfolio has enabled it to fortify its foothold in this niche space globally. Ecolab delivers comprehensive solutions, data-driven insights and personalized service to advance food safety and maintain clean and safe environments. It also provides products and services that optimize water and energy use and improve operational efficiencies and sustainability for customers in the food, healthcare, hospitality and industrial markets in more than 170 countries around the world.

The company’s products and technologies are also used in water treatment, pollution control, energy conservation, refining, primary metals manufacturing, papermaking, mining and other industrial processes.

Strong Q1 Results: Ecolab’s solid first-quarter 2024 results buoy optimism. Per management, Ecolab witnessed a strong first quarter with significant growth in organic sales and expansion in organic income margin. During the same time, the company drove pricing, which was backed by strong customer value, and improved its underlying productivity by leveraging its digital capabilities. On the earnings call in April, management stated that volumes in the first quarter continued to improve, reflecting new business wins.

On the first-quarter earnings call, management confirmed that it has entered into a definitive agreement for the sale of its global surgical solutions business to Medline for $950 million in cash. The sale is expected to close in the second half of 2024, subject to regulatory clearances and other customary closing conditions. The company expects to record an associated pre-tax gain.

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Downsides

Cost Fluctuations: The cost of the raw materials that Ecolab uses in its operations is subject to occasional fluctuations. The company has seen times of rising raw material costs in the last few years. Ecolab's combined operating results could be considerably and negatively impacted by changes in the price of raw materials and the lack of suitable and reasonably priced raw materials or substitutes for the same.

Stiff Competition: Ecolab operates in competitive markets across various segments, where a few large companies dominate alongside numerous smaller entities targeting specific regions or product ranges.

In the Global Industrial segment, competition is based on value and technical expertise. The Global Institutional & Specialty segment faces competition from both large and small international firms and local competitors focusing on specific geographies and products.

The Healthcare business within the Global Healthcare & Life Sciences segment competes mainly with companies specializing in a narrower product range, with limited global competitors, while the Life Sciences business faces several mid-size and regional competitors in Europe and North America, with more fragmented competition elsewhere.

Estimate Trend

Ecolab is witnessing a positive estimate revision trend for 2024. In the past 60 days, the Zacks Consensus Estimate for its earnings has improved 17 cents to $6.59 per share.

The Zacks Consensus Estimate for the company’s second-quarter 2024 revenues is pegged at $4.04 billion, indicating a 4.8% improvement from the year-ago quarter’s reported number.

Other Key Picks

Some other top-ranked stocks in the broader medical space that have announced quarterly results are DaVita Inc. (DVA Quick QuoteDVA - Free Report) , Universal Health Services (UHS Quick QuoteUHS - Free Report) and Elevance Health, Inc. (ELV Quick QuoteELV - Free Report) .

DaVita, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 13.6%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 29.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DaVita’s shares have gained 46.6% compared with the industry’s 15.6% rise in the past year.

Universal Health Services has an Earnings ESP of +2.91% and a Zacks Rank #2 at present. UHS has an estimated earnings growth rate of 30.5% for 2024.

UHS’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.12%.

Elevance Health’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 2.77%. The consensus estimate for ELV’s 2024 earnings indicates a rise of 12.4% from the year-ago figure. The consensus mark for revenues implies an improvement of 1.1% from the year-ago reported figure.

ELV carries a Zacks Rank #2 at present.