Stock (Symbol) |
Ecolab (ECL) |
Stock Price |
$119 |
Sector |
| Food & Necessities |
Data is as of |
| January 6, 2017 |
Expected to Report |
| Feb 21 – 27 |
Company Description |
 Ecolab Inc. provides water, hygiene and energy technologies and services. Operating segments include Global Industrial, Global Institutional, Global Energy and Other. The Company’s Global Industrial segment consists of the Water, Food and Beverage, Paper and Textile Care operating units. Global Institutional segment consists of the Institutional, Specialty and Healthcare operating units. The Global Energy segment provides on-site, technology-driven solutions to the global drilling, oil and gas production, refining, and petrochemical industries. Other segment consists of the pest elimination and equipment care operating units. The Company’s cleaning and sanitizing programs and products, pest elimination services and equipment maintenance and repair services support customers in the food service, food & beverage processing, hospitality, healthcare, Government & education, retail, textile care & commercial facilities in 170 countries. Source: Thomson Financial |
Sharek’s Take |
 Ecolab (ECL) is a wonderful company, but profits have been crimped by a slow Energy market and foreign exchange. Currency headwinds are clipping approximately $0.30 off Ecolab’s 2016 profits, taking profit growth from around 8% to just 1% (est), with around half the F/X cost was from Venezuela’s devaluation. Now the currency headwind is easing, from 14% three qtrs ago to roughly 1% in the current qtr. Mining is also expected to rebound this qtr, and that not only helps the Energy division, but Water as well. Ecolab’s products serve the following industries: (1) Food and beverage manufacturing plants, (2) Water purifying plants, (3) Housekeeping, (4) Food retailers & supermarkets, (5) Hospitals & healthcare facilities, (6) Power plants & oil refineries and (7) Pest elimination. The company was founded in 1923 as Economics Laboratory. Its 1st product was Absorbit which cleaned carpets on the spot and eliminated the need for hotels to be shut down to be cleaned. It went public in 1957 then changed its name to Ecolab in 1986, and has increased its dividend each year since. The company has 6000 patents and 1500 scientists who continue to innovate, creating new and better products. This is a quality, conservative stock with 90% recurring revenue and clean annual reports. ECL has grown profits 14% a year the last 20 years and management targets 15% profit growth every year. Bill Gates owns 10% of the shares outstanding. Analysts have an Est LTG of 11% on the stock in addition to a 1% yield. Profit growth is expected to accelerate to 12% in 2017, but with the stock already selling for 24x earnings I think much of the future gains are priced in. |
One Year Chart |
 Last qtr Ecolab had flat profit growth on -2% sales growth. Profits look to be weak next qtr as 4% growth is expected, then rebound to 17%, 11% and 9% the following three qtrs. Annual profit estimates have been on a slight decline the last 4 qtrs, thus the stock isn’t out of the woods yet. This stock made a huge move higher during the first half of 2016 that made it overvalued at 27x earnings, and now is digesting those gains. |
Fair Value |
 Ecolab always seems to be overvalued. But when you consider profits have grown every year the past decade, it makes it easier to “pay up” for the quality. My Fair Value is 25x earnings, which is more than double the company’s estimated long-term growth rate. This stock is trading around where it should be. |
Bottom Line |
 Ecolab’s profit growth is expected to accelerate from 1% to 12% this year. But with the stock so close to my Fair Value, I don’t think it will break out of this base until later in the year or maybe next year. Still, this is one of the safest stocks in the world with most of its revenues recurring and a dividend that’s been raised thirty years. I think retired investors should buy in on pullbacks, as the stock is in a multi-year sideways trend. ECL is ranked 27th of 30 stocks in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 27 of 30 |
