Stock (Symbol)

Ecolab (ECL)

Stock Price

$135

Sector

Food & Necessities

Data is as of

January 2, 2018

Expected to Report

Feb 19

Company Description

Ecolab Inc. provides water, hygiene and energy technologies and services. Operating segments include Global Industrial, Global Institutional, Global Energy and Other. Source: Thomson Financial

Sharek’s Take

Ecolab’s CEO (ECL) expects more Ecolab-like results in 2018, as business fundamentals are improving. 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 in the rear-view mirror, and profits are expected to climb 13% in 2018. Unfortunately, investors know this and have priced the stock up in anticipation of faster growth ahead. Ecolab 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 has an Est. LTG of 12%, a yield of 1%. 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 recently increased his stake). Overall this is a great buy-and-hold investment for conservative accounts. The only negative is the stock is close to its 2018 Fair Value. But with better results on the horizon, ECL could have the juice to keep on climbing.

One Year Chart

Profit growth has been accelerating all year. Last qtr the 7% growth came on 5% increase in sales. Management lowered next qtr’s estimate a bit due to a slowdown from the hurricanes. Still, profit Estimates are 11%, 19%, 12% and 9% the next 4 qtrs. That would be a return to more Ecolab-like results. ECL’s Est. LTG did decline 1% this qtr to 12% a year. Still, I’d take 10% with this stock. It’s high quality.

Fair Value

My Fair Value is 26x earnings which is $138 this year and $153 next. The stock is around it’s 2018 Fair Value. But I’ve followed this stock for a few years now and that’s always the case. Ecolab always seems high — then goes higher.

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. Now with the economy growing strong and the dollar not sinking sales, ECL should get back to growing profits in the double-digits in 2018. My only issue is the stock is close to its Fair Value, thus ECL ranks just 28th in the Conservative Portfolio Power Rankings.