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3 Reasons to Retain Ecolab (ECL) Stock in Your Portfolio

Ecolab Inc. ECL is well-poised for growth in the coming quarters, courtesy of its focus on research and development (R&D). The optimism led by a solid third-quarter 2023 performance, along with its strong business, is expected to contribute further. However, concerns arising from cost fluctuations and data security threats persist.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 28.7% compared with a 10.1% rise of the industry and 15.5% growth of the S&P 500 composite.

The renowned water, hygiene and infection prevention solutions and services provider has a market capitalization of $53.39 billion. It projects 13.1% growth for the next five years and expects to maintain a strong performance. Ecolab’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 1.9%.

Zacks Investment Research
Zacks Investment Research


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Let’s delve deeper.

Focus on R&D: Ecolab’s R&D program consists principally of developing and validating the performance of new products, processes, techniques and equipment, improving the efficiency of those already existing, improving service program content, evaluating the environmental compatibility of products and technical support. Management believes continued R&D activities are critical to maintaining its leadership position within the industry and will provide it with a competitive advantage as it seeks additional business with new and existing customers.

Strong Business: Ecolab’s consistent delivery of considerable earnings growth despite the current challenging business environment continues to impress. Ecolab continued to deliver very strong sales and earnings growth despite unpredictable macro conditions in the third quarter of 2023. Management was upbeat about the organic operating income margin, which continued to expand significantly, driven by robust gross margin expansion.

Management commented about Ecolab continuing to focus on driving new business wins and further pricing improvements, supported by the value created by the company for customers via reduced water and energy consumption and enhanced productivity.

Strong Q3 Results: Ecolab’s solid third-quarter 2023 results buoy our optimism. The company registered a robust year-over-year uptick in its top and bottom lines, along with solid performances across all segments. Strong pricing momentum and accelerating volume trends were also seen. The company’s innovation, digital offerings and service capabilities are expected to lead to robust new business wins, which are encouraging.

Downsides

Cost Fluctuations: The prices of raw materials used in Ecolab’s business can fluctuate from time to time. In recent years, the company has experienced periods of increased raw material costs. Changes in raw material prices and the unavailability of adequate and reasonably priced raw materials or substitutes for the same can materially and adversely affect Ecolab’s consolidated results of operations.

Data Security Threat: Ecolab relies, to a large extent, upon information technology systems and infrastructure to operate its business. The size and complexity of the company’s information technology systems make them potentially vulnerable to failure, malicious intrusion and random attacks. Acquisitions have resulted in further de-centralization of systems and additional complexity in its systems infrastructure.

Estimate Trend

Ecolab is witnessing a positive estimate revision trend for 2023. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 1.9% north to $5.18.

The Zacks Consensus Estimate for the company’s fourth-quarter 2023 revenues is pegged at $3.94 billion, suggesting a 7.2% improvement from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are DaVita Inc. DVA, Cardinal Health, Inc. CAH and Integer Holdings Corporation ITGR.

DaVita, sporting a Zacks Rank #1 (Strong Buy), has an estimated long-term growth rate of 18.3%. DVA’s earnings surpassed estimates in all the trailing four quarters, with an average surprise of 36.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DaVita’s shares have gained 37.7% compared with the industry’s 5.2% rise in the past year.

Cardinal Health, carrying a Zacks Rank of 2 (Buy) at present, has an estimated long-term growth rate of 15.2%. CAH’s earnings surpassed estimates in all the trailing four quarters, with an average of 15.7%.

Cardinal Health’s shares have gained 35.4% compared with the industry’s 11.8% rise in the past year.

Integer Holdings, flaunting a Zacks Rank of 1 at present, has an estimated long-term growth rate of 15.8%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 11.9%.

Integer Holdings’ shares have rallied 25.9% against the industry’s 3.8% decline in the past year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Ecolab Inc. (ECL) : Free Stock Analysis Report

DaVita Inc. (DVA) : Free Stock Analysis Report

Cardinal Health, Inc. (CAH) : Free Stock Analysis Report

Integer Holdings Corporation (ITGR) : Free Stock Analysis Report

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Zacks Investment Research

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