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Here's Why You Should Retain Ecolab Stock in Your Portfolio

Zacks Equity Research

Ecolab Inc. ECL has been gaining investors’ confidence on continued robust performance. The company issued an impressive guidance for 2019. However, intensifying competition and integration risks are primary headwinds for the company as of now.

In a year’s time, the stock has gained 31.1% compared with the industry’s 5.7% growth. Moreover, the company has an interesting earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average being 0.5%. Notably, this trend of consecutive beats underlines the company’s operating efficiency.

So let us take a quick look at the primary factors plaguing this Zacks Rank #3 (Hold) company and discuss the prospects that ensure near-term recovery.

 

Deterrents

Ecolab operates in highly competitive markets. Notably, the company faces competition from bigwigs like P&G, Unilever, PuroClean and ChemStation. The company’s U.S. Cleaning & Sanitizing and International divisions face stiff competition from Clorox and Church & Dwight.

Factors That Bode Well

View Impressive

Ecolab issued an impressive guidance for 2019.

Notably, the company expects 2019 adjusted earnings per share (EPS) of $5.80 to $6.00, rising 10-14% from the 2018 figure.

Adjusted tax rate is expected to be 20-21%.

For the first quarter of 2019, adjusted EPS is projected between 98 cents and $1.06, reflecting year-over-year growth of 8-16%.

Cost Efficiency Program

Ecolab recently announced an efficiency program that will generate $325 million of run rate savings by 2021. Earlier, the company predicted it to be $200 million. These additional savings are likely to have a strong impact on 2019, 2020 and 2021 results.

For boosting its G&A solutions, Ecolab will be strengthening its Workday and SAP platforms by consolidating systems, back offices and third-party vendors.

Product-Portfolio Solid

The company has major launches underway. Ecolab also continues to invest significantly in customer-facing technology and infrastructure technology.

The company's new Health Department Intelligence (HDI) platform also helps foodservice operators better understand their health inspection results, improve health inspection performance and better manage food safety risks across multiple sites.

In recent times, Ecolab launched a Life Sciences cleanroom program in North America, developed specially for pharmaceutical manufacturing. The program provides comprehensive cleaning and disinfection for both sterile and non-sterile applications.

Ecolab has been gaining traction in digital technology markets also. The company expects to invest largely in the coming quarters to enhance its digital portfolio. New customer-digital programs like SMARTPOWER, 3D CIP, 3D TRASAR, new QSR and FRS digital safety platforms continue to improve field efficiency, customer service and capability. Per management, new additions to its portfolio will help Ecolab reach its mid-teens EPS growth goal beyond 2019.

Which Way Are Estimates Heading?

The Zacks Consensus Estimate for first-quarter 2019 earnings is pegged at $1.02, reflecting year-over-year increase of 12.1%. The same for revenues stands at $3.57 billion, indicating 12.6% rise.

For 2019, the Zacks Consensus Estimate for earnings is at $5.91, reflecting rise of 13%. The same for revenues stands at $15.46 billion, indicating 5.4% rise.

Ecolab Inc. Price and Consensus

Ecolab Inc. Price and Consensus | Ecolab Inc. Quote

Bottom Line

Despite cutthroat competition in the niche markets, Ecolab seems to be positioned for growth on strong guidance and solid product portfolio. The company's long-term earnings growth rate of 12.6% also supports this view.

Key Picks

A few better-ranked stocks from the MedTech space are DexCom, Inc. DXCM, Varian Medical Systems, Inc. VAR and Masimo Corp. MASI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DexCom delivered a positive earnings surprise in each of the trailing four quarters, the average being 132.3%.

Varian Medical has long-term earnings growth rate of 8%.

Masimo Corporation has long-term earnings growth rate of 15.6%.

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Ecolab Inc. (ECL) : Free Stock Analysis Report
 
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