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Ecolab’s Profits Expected to Accelerate

Stock (Symbol)

Ecolab (ECL)

Stock Price

$130

Sector
Food & Necessities
Data is as of
September 11, 2017
Expected to Report
Oct 30
Company Description
ecolab_logoEcolab 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
David SharekEcolab (ECL) only grew profits 5% last qtr, but investors are bullish as management expects growth to accelerate. Analysts share this opinion, and expect profits to climb an average of 15% the next 4 qtrs. The company was founded in 1923 as Economics Laboratory and 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. Today it boasts 6000 patents and 1500 scientists who continue to innovate, creating new and better products. 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. ECL is usually a double-digit profit grower. But in 2015 and 2016 growth was slow as low oil prices caused a slowdown in production and a higher dollar cut into sales (Venezuala’s devaluation hurt F/X). Now those issues are expected to be behind ECL after next qtr. Investors know this — and have priced the stock up in anticipation of faster growth ahead. ECL has an Est. LTG of 13%, a yield of 1% and a P/E of 27, which is a little more than my Fair Value P/E of 26. This is a quality, conservative stock with 90% recurring revenue and clean annual reports. Through 2015, ECL had grown profits 14% a year the prior 20 years — and management has a target 15% profit growth every year. Bill Gates even owns 10% of the shares (and just increased his stake). Overall this is a great buy-and-hold investment for conservative accounts that look for their money to grow 10% a year.
One Year Chart
Profit growth hasn’t been good for a while now, and this run-up in the stock took me by surprise. Last qtr ECL had 5% profit growth (which met the 5% est) on 4% sales growth. Qtrly Estimates are for profit growth of 8%, 16% 20% and 13% the next 4 qtrs. But the stock ran up in anticipation of this, and is now basing.
Fair Value
Ecolab always seems to be overvalued — yet continues to rise. My Fair Value is 26x earnings which is $124 this year and $139 next. The stock is around $130 now, which suggests to me my guesstimate is accurate.
Bottom Line
Ecolab’s one of those little-known stocks that have produced double-digit returns to investors while providing a high degree of safety. The company is a market leader in cleaning supplies and innovates to not only improve products but also lower their cost to Ecolab customers. Stock buybacks allow profits to grow in the double-digits with single-digit sales growth. This is a solid core investment for retirees to buy-and-hold. ECL ranks 26th of 33 stocks in the Conservative Portfolio Power Rankings.
Power Rankings
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