Ecolab Hurt By Low Oil and a High Dollar

Stock (Symbol)

Ecolab (ECL)

Stock Price


Food & Necessities
Data is as of
January 10, 2016
Expected to Report
Feb 23
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), the worldwide leader in cleaning chemicals, should end 2015 with solid mid-single digit sales gains and low-teens profit growth before the effects of currency translation. But F/X is expected to take 2015 EPS down $0.33, trimming annual profit growth from 13% to 5%. ECL expects F/X to lower 2016 EPS estimates $0.45-$0.45 and also has to deal with a weakened oil market (less drilling=less cleanup). Ecolab 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. The company went public in 1957 then changed its name to Ecolab in 1986, and has increased its dividend each year since. Over the years Ecolab expanded exponentially and now serves 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 just lowered profit estimates across the board, and now expects 10% profit growth in 2016 (but that can fall again). At 22x earnings I feel the stock is fairly valued here, and might not make much headway in 2016 as the environment is tough. Still, ECL is a solid buy-and-hold stock that’s grown 11% a year the past decade, pays a 1% dividend and gets a top safety rating of 1 from Value Line. Bill Gates owns 10% of shares.
One Year Chart
ECL_2015_Q4The stock fell this month after management said the Venezuelan business is being hurt by deteriorating economic conditions and currency exchange, and this will result in a $0.17 charge against 2016 EPS, and profit estimates just fell across the board. Last qtr I had qtrly est of 7%, 13%, 18%, 19%. Now I have 4%, 4%, 9%, 9%. If this stock was still $115 I would probably sell it, buy now it’s already down and I am confident it will eventually return to new highs. 
Fair Value
ECL_2015_Q4_PHAlthough profits tend to grow in the low-teens, ECL deserves a P/E in the low-20s because of its safety and consistency in growing each and every year. Do note when things are good ECL has gotten a P/E in the high-20s. My 2016 Fair Value on Ecolab is $102, 2016’s is $115.
Bottom Line
ECL_2015_Q4_10yrEcolab is a fantastic company. When I read its annual reports, the company shows ten years of financial data and all the numbers match the ones I got from other sources — clean financials just like its products.  But today the company has two battles: (1) foreign exchange, as 50% of sales are abroad and (2) oil prices, as 30% of sales come from energy. Still, there only times profits failed to grow 10% the past decade were in 2009’s recession and in 2015. Ecolab is a clean company, both within its business and with its financials, and carries a top safety rating. But at 22x earnings the stock’s fairly valued here and with the stock market diving there’s better short-term buys. ECL ranks 32 of 34 stock in the Conservative Portfolio Power Rankings.
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