Stock (Symbol)

Ecolab (ECL)

Stock Price

$119

Sector

Food & Necessities

Data is as of

September 26, 2016

Expected to Report

Oct 31 – Nov 4

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 up as profits are flatlining, proving you can’t judge a book by its cover. 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. The company has 1500 scientists and 6000 patents who continue to innovate and create new and better products to offer, with 90% of revenues recurring. Bill Gates owns 10% of the shares outstanding. This is a quality, conservative stock with clean annual reports. ECL has grown profits 14% a year the last 20 years and management targets 15% profit growth every year. Analysts peg the Est LTG at 12% in addition to a 1% dividend which has increased every year since 1986. But right now ECL is working against a strong dollar and poor Energy market (30% of sales). Growth is expected to be back on track in 2017 Q1, but at 27x earnings this stock is rich considering profits are flat currently.

One Year Chart

Last qtr sales fell 1% and profits were the same as last year as the company met analyst estimates. Profit estimates ticked down slightly across the board. Profit Estimates for the next 4 qtrs are 0%, 6%, 16% and 11% so by the first qtr of 2017 the company should be back to double-digit growth. The issue is in the meantime the stock’s valuation is high.

Fair Value

My Fair Value is 25x earnings, which gives the stock a Fair Value of $111. I’m really being generous with this 25 P/E, as most companies with 0% growth wouldn’t deserve a P/E so high. But this is a quality company. My 2017 Fair Value is $125, but that’s just 5% higher than the current quote — not much upside.

Bottom Line

Ecolab is an outstanding company with a tremendous track record of double-digit profit growth. Right now profits aren’t growing, but that doesn’t phase the smart money who invests in the stock and knows better days are around the corner. Still, I don’t see ECL as a good value unless you’re a conservative investor who likes to buy-and hold, or you pick this stock up on a dip to say $115. ECL is ranked 34th of 38 stocks in the Conservative Portfolio Power Rankings.