Ecolab Inc. (ECL - Free Report) is a popular name in the MedTech space. The stock has returned 12.7%, comparing favorably with the industry’s decline of 2.1% in a year’s time. Also, the current return is higher than the S&P 500’s rally of 11.4%.
With a market capitalization of approximately $40.51 billion, the stock has met earnings expectations in the second and third quarter of 2017. However, the company missed estimates in the first and fourth quarter of fiscal 2017. Currently, Ecolab is grappling with stiff competition and foreign exchange volatility in the niche space. The mixed sentiments justify the stock’s Zacks Rank #3 (Hold).
Here we take a detailed look at the company’s performance and operations to analyze why investors should hold on to this stock.
What’s Acting in Favor of Ecolab?
Ecolab’s segmental businesses continue to gain from product innovation and strategic buyouts. The company’s Global Industrial segment has gained from the Water, Food & Beverage and Life Sciences units in the fourth quarter. While Global Institutional segment sales witnessed solid growth in North America and Asia Pacific, Global Energy segment sales rose on strong growth in the well stimulation business and modest gains in the downstream business.
Ecolab’s raised guidance for 2018 instills optimism. The company expects adjusted earnings in the range of $5.25-$5.45 per share, up 12-16% year over year.
For the first quarter of 2018, Ecolab expects adjusted earnings in the range of 85-93 cents per share, up from the previous range of 84-92 cents. The current outlook reflects an increase of 6-16% year over year.
Ecolab has also been banking on acquisitions to gain market traction and boost profits. Recently, Ecolab acquired Cascade Water Services Inc., a privately-held company, based in New York that provides water treatment programs and services to the U.S. institutional market. Notably, acquisitions broaden services and improve opportunities in strategic water treatment market, enhancing Ecolab's ability to help customers address growing water limitations in and outside the United States.
Ecolab operates in highly competitive markets. Competitors include large companies, selling directly or through distributors, and many smaller regional players who focus on limited geographical areas, product line, and/or end-user division.
Probable cost fluctuations, especially in Europe, might prove detrimental for the company. The frequent changes in oil or raw material prices, the absence of adequate and reasonably priced raw materials or their substitutes coupled with other factors can mar the business model of the company. The company further expects inflation to stay in the first half of 2018 and also to continue till the end of 2018.
Despite Ecolab’s strong global foothold, volatility in currency exchange rates have adversely impacted overall results. Such volatility is expected to persist till the end of 2018.
Unhindered by the issues, analysts are optimistic about Ecolab. For the current quarter, the Zacks Consensus Estimate is at 88 cents, reflecting a year-over-year rise of 10%.
Consequently, investors might want to hold on to the stock, courtesy of its prospects of outperforming peers in the near future.
The company has been successful in driving revenues, evident from its year-over-year rise in top line. We believe strategic acquisitions and a strong international presence will continue to drive overall growth.
A few better-ranked stocks in the broader medical space are BIOHAVEN PHARM (BHVN - Free Report) , Bio-Rad Laboratories, Inc. (BIO - Free Report) and Envision Healthcare Corporation . While BIOHAVEN and Bio-Rad sport a Zacks Rank #1 (Strong Buy), Envision carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BIOHAVEN has an expected growth rate of 50% for the current quarter and 42.1% for the next quarter.
Bio-Rad has an expected long-term growth rate of 20% and 42.9% for the current year.
Envision has an expected long-term growth rate of 13% and 10.6% for the next quarter.
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