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Here's Why You Should Hold on to Ecolab (ECL) Stock Now

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With a market capitalization of approximately $42.88 billion, Ecolab Inc.’s (ECL - Free Report) strength in the Global Institutional segment, courtesy of growth in the Specialty and Healthcare businesses, is providing it a competitive edge in the MedTech space. However, intense competition, foreign exchange volatility, higher raw material costs and integration risks are primary headwinds.

A robust product portfolio, new product launches as well as expanding customer base will drive organic sales and the realization of targeted synergies associated with acquisitions is likely to drive margins. For 2018, the Zacks Consensus Estimate for revenues is pegged at $14.87 billion. The same for adjusted earnings for 2018 is pegged at $5.39 per share, reflecting an increase of 14.9%.

The stock has a Zacks Rank #3 (Hold). Here we take a quick look at the primary factors that have been plaguing Ecolab and henceforth discuss the prospects that ensure near-term recovery of the stock.

Ecolab Inc. Price and Consensus

What's Deterring Ecolab?

Intense competition, foreign exchange volatility, higher raw material costs and integration risks are primary headwinds.

Issues Pertaining to ERP Adoption

Ecolab is in the process of adopting enterprise resource planning (ERP) and human resources software systems. The changes will incur one-time implementation costs that will put pressure on  earnings in the second half of 2018. The new ERP system will be installed in North America.

However, management confirmed that the company has a lot of experience in ERP roll out. However, it requires time and huge expenditures to complete the process.

Cutthroat Competition

Ecolab operates in highly competitive markets. The company’s competitors can be grouped into two classes — large companies, selling directly or through distributors and various smaller regional players who focus on limited geographical areas, product line and/or end-user division. The company’s U.S. Cleaning & Sanitizing and International divisions face stiff competition from Clorox and Church & Dwight.

Why Should You Still Hold?

Strong Business

Ecolab’s consistent delivery of considerable earnings growth amid a challenging business environment looks impressive. Investors are optimistic about the company's large base of recurring revenues, industry-leading technologies along with excellent field service to support long-term growth for the company. Management is positive about the improvement in the company’s ability to attract customers along with opportunities for greater consumer penetration through product development.

In the second quarter of 2018, Ecolab witnessed strong performances in its core segments. Moreover, Europe, North America and Latin America drove Global Industrial regional growth.

Strong International Presence

Ecolab has a significant presence in the international market. The largest international operations of the company are in Europe, Asia-Pacific, Latin America and Canada. The company operates on a smaller scale in Africa and the Middle East. Latin America represents a key growth area for the company’s overseas operation. Its strong international presence has boosted growth. We believe that the company will sustain the momentum in the upcoming years on the back of strong performance from emerging markets.

In the second quarter of 2018, sales in the core Global Institutional segment improved significantly in North America and Asia Pacific.

During the second quarter, Ecolab confirmed that it expects inflation to persist. In fact, the company anticipates witness pressures related to inflation until late 2018.

Price Performance

In the past year, Ecolab has outperformed the industry. The company’s shares have returned almost 13.9% compared with the industry’s rise of 5%. Ecolab continues to see underlying sales volume and improvement in pricing in most of  the segments.

 

A robust portfolio, product launches and expanding customer base will drive organic sales. Also, the realization of targeted synergies associated with acquisitions is likely to expand margins.

Key Picks

A few better-ranked stocks in the MedTech space are Inogen Inc (INGN - Free Report) , Integer Holdings Corporation (ITGR - Free Report) and The Cooper Companies (COO - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen has a long-term expected earnings growth rate of 22.5%, while the same for Integer Holdings and The Cooper Companies is at 15% and 10.8%, respectively.

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