Ecolab Inc. ECL has been gaining from its solid product portfolio. The optimism, led by a solid second-quarter 2024 performance, along with solid long-term growth prospects, is expected to contribute further. However, concerns arising from cost fluctuations persist.
This Zacks Rank #3 (Hold) stock has rallied 30.2% year to date against the industry’s 11.3% decline. The S&P 500 Composite has increased 22.8% during the same time frame.
The renowned water, hygiene and infection prevention solutions and services provider has a market capitalization of $73.75 billion. It projects 14.9% growth for the next five years and expects to maintain a strong performance in the future. Ecolab’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 0.98%.
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Reasons Favoring Ecolab’s Growth
Robust Product Portfolio: Due to its strong line of products, Ecolab has been able to strengthen its position in the specialized market on a global scale. Ecolab provides thorough solutions, data-driven insights, and individualized care to promote food safety and maintain clean and safe environments. Additionally, it offers services and solutions that help clients in the food, healthcare, hotel, and industrial sectors in more than 170 nations achieve sustainable practices, increased operating efficiencies, and reduced water and energy use.
Ecolab’s cleaning and sanitizing programs and products and pest elimination services support customers in the foodservice, food and beverage processing, hospitality, healthcare, government and education, retail, textile care and commercial facilities management sectors. The company’s products and technologies are also used in water treatment, pollution control, energy conservation, refining, primary metals manufacturing, papermaking, mining and other industrial processes.
Solid Long-Term Growth Prospects: Ecolab’s considerable earnings growth despite macro uncertainties continues to impress. Management remains optimistic regarding improvement in its ability to attract new customers and opportunities for greater customer penetration through new product development.
Per management, Ecolab witnessed a strong second quarter with significant growth in organic sales and expansion in organic income margin. Per management, the Institutional & Specialty segment lapped last year’s strong pricing delivery. Performance across the Pest Elimination, Industrial and Healthcare segments also improved.
Per management, growth in organic operating income margin can be attributed to lower supply-chain costs, value pricing, and volume growth more than offset growth-oriented investments in the business. Management affirmed that in 2024, their focus remains on continuing to fuel Ecolab’s strong and consistent long-term double-digit earnings per share growth.
Cost Efficiency Programs: In August 2024, Ecolab announced the closure of the sale of its global surgical solutions business to Medline for $950 million in cash. The proceeds from this transaction are likely to enhance the company’s ability to invest in attractive growth opportunities and return capital to shareholders. The company also announced its intent to repurchase up to an additional $500 million of Ecolab’s stock during the second half of 2024.
On July 30, 2024, Ecolab announced the One Ecolab initiative, which is likely to enhance its growth and margin expansion journey. As a program within this initiative, the company announced that it commenced a restructuring plan to leverage its digital technologies to realign the functional work done in many countries into global centers of excellence.
In November 2022, Ecolab’s management approved a Europe cost-savings program. In February 2023, the company expanded this program to focus on its Institutional and Healthcare businesses in other regions. The expanded program, called The Combined Program, has delivered $137 million of cumulative cost savings with estimated annualized cost savings of $175 million in continuing operations by the end of 2024.
Strong Q2 Results: Ecolab’s solid second-quarter 2024 results buoy optimism. The company registered a robust year-over-year uptick in its top and bottom lines, along with solid performances across most of its segments. Lower delivered product costs, value-based pricing and volume growth during the quarter were encouraging.
Ecolab’s decision to sell its Global Surgical Solutions business to transform its Global Healthcare business also raises optimism in the stock. The expansion of both margins bodes well for the stock.
A Factor That May Offset the Gains for ECL
Cost Fluctuations Concerns: The prices of raw materials used in Ecolab’s business can fluctuate occasionally. In recent years, the company has experienced periods of elevated raw material prices due to persistent inflationary trends and supply-chain challenges. Changes in raw material prices, unavailability of adequate and reasonably priced raw materials or substitutes, and the inability to obtain or renew supply agreements on favorable terms can affect Ecolab’s consolidated results of operations, financial position or cash flows.
In addition, volatility and disruption in economic activity and conditions could disrupt or delay the performance of Ecolab’s suppliers, thus impacting its ability to obtain raw materials at favorable prices or on favorable terms, which may affect the company’s business.
Estimate Trend
Ecolab is witnessing a stable estimate revision trend for 2024. In the past 60 days, the Zacks Consensus Estimate for its earnings has remained stable at $6.65 per share.
The Zacks Consensus Estimate for the company’s third-quarter 2024 revenues is pegged at $4.02 billion, indicating a 1.7% improvement from the year-ago quarter’s reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Addus HomeCare ADUS, Quest Diagnostics DGX and RadNet RDNT. While Addus HomeCare sports a Zacks Rank #1 (Strong Buy), Quest Diagnostics and RadNet carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Addus HomeCare has an estimated long-term growth rate of 12.1%. ADUS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 11.5%.
Addus HomeCare shares have rallied 85.5% compared with the industry's 16.9% growth year to date.
Quest Diagnostics has an estimated long-term growth rate of 6.8%. DGX's earnings surpassed estimates in each of the trailing four quarters, with the average being 3.3%.
Quest Diagnostics has gained 42% compared with the industry's 14.9% growth year to date.
RadNet’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 98.2%.
RDNT's shares have surged 93.7% year to date compared with the industry’s 14.8% growth.
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