Ecolab Inc. (NYSE:ECL) last week reported its latest annual results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. It was a credible result overall, with revenues of US$15b and statutory earnings per share of US$5.33 both in line with analyst estimates, showing that Ecolab is executing in line with expectations. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following last week's earnings report, Ecolab's 17 analysts are forecasting 2020 revenues to be US$15.1b, approximately in line with the last 12 months. Statutory earnings per share are expected to climb 13% to US$6.09. Before this earnings report, analysts had been forecasting revenues of US$15.3b and earnings per share (EPS) of US$6.35 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share forecasts for next year.
The consensus price target held steady at US$207, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Ecolab analyst has a price target of US$229 per share, while the most pessimistic values it at US$162. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
In addition, we can look to Ecolab's past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. We can infer from the latest estimates that analysts are expecting a continuation of Ecolab's historical trends, as next year's forecast 1.5% revenue growth is roughly in line with 1.7% annual revenue growth over the past five years. Compare this with the wider market (in aggregate), which analyst estimates suggest will see revenues fall 3.7% next year. So it's pretty clear that Ecolab is expected to grow slower than similar companies in the same market.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Ecolab. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. The consensus price target held steady at US$207, with the latest estimates not enough to have an impact on analysts' estimated valuations.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Ecolab going out to 2024, and you can see them free on our platform here..
It might also be worth considering whether Ecolab's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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