Ecolab Inc. ( ECL Quick Quote ECL - Free Report) is likely to gain from strong third-quarter 2019 results and a solid guidance for the fourth quarter. However, a dull guidance for 2019 and foreign exchange headwinds raise concern.
In a year’s time, shares of Ecolab have rallied 21.9% compared with the
industry’s 13.8% rise. Meanwhile, the S&P 500 Index has risen 21.2%.
With a market capitalization of $53.73 billion, Ecolab is a leading provider of water, hygiene and energy technologies and services that protect people and vital resources. The company’s earnings are anticipated to grow 12.4% over the next five years. For the trailing four quarters, the company has a positive earnings surprise of 0.3%, on average.
Let’s take a closer look at the factors that substantiate Ecolab’s Zacks Rank #3 (Hold).
Factors Working in Favor
In the recently reported third quarter of 2019, Ecolab reported adjusted earnings per share (EPS) of $1.71, up 11.8% on a year-over-year basis.
Revenues amounted to $3.82 billion, up 1.9% from the year-ago quarter number.
Notably, core segments — Global Industrial, Global Institutional and Other — made strong contributions to the top line.
While revenues at Global Industrial grew 5.2%, the same at Global Institutional rose 4% year over year.
Per management, growth in Water, Food & Beverage and Life Sciences units and Ecolab’s Specialty business drove the upside.
The Other unit grew 6.8% year over year on strong gains in both Pest Elimination and Colloidal Technologies.
Reflective of this, the company expects fourth-quarter adjusted EPS within $1.64-$1.74, suggesting year-over-year growth of 6-13%.
Adjusted gross margin is expected to be 42% of quarterly sales for the fourth quarter as well as 2019. Factors Deterring the Stock
In the third quarter, Ecolab’s Global Energy sales dropped 2.7% year over year owing to lower upstream sales.
Hence, for 2019, Ecolab expects adjusted EPS within $5.80-$5.90, calling for 10-12% growth over 2018. The projected band is lower than the previously-communicated range of $5.80-$6.00.
Also, foreign currency translation is expected to have a 13-cent unfavorable impact on adjusted EPS.
Which Way Are Estimates Headed?
For 2019, the Zacks Consensus Estimate for revenues is pegged at $15 billion, indicating an improvement of 2.3% from the year-ago reported figure. For adjusted earnings, the same stands at $5.86 per share, suggesting growth of 11.6% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are CONMED Corporation
CNMD, HealthEquity HQY and West Pharmaceutical Services WST. While CONMED and West Pharmaceutical each currently carrying a Zacks Rank #2 (Buy), HealthEquity sports a Zacks Rank #1 (Strong Buy).. You can see . the complete list of today’s Zacks #1 Rank stocks here
Conmed has a long-term earnings growth rate of 17%.
HealthEquity has a long-term earnings growth rate of 25%.
West Pharmaceuticals has a long-term earnings growth rate of 14%.
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