On Mar 19, we issued an updated research report on St. Paul, MN-based Ecolab Inc ECL. Ecolab, a global provider of water, hygiene and energy technologies and services, has been delivering considerable earnings growth over the past few quarters, despite the current challenging business environment, mixed end-markets and foreign exchange headwinds.
We are impressed with Ecolab’s focus on product innovation, sales organization, volume growth and cost-saving actions. The company is also making continued investments in key growth businesses and executing bolt-on acquisitions to gain market share and boost profits. The acquired entities have helped the company expand its customer base as well as increase its international presence.
We feel Ecolab’s strong presence in the international market will continue to drive growth, particularly in the emerging markets, which represent a promising opportunity.
Although Ecolab’s extensive international presence has significant positives, macroeconomic problems and fluctuations in currency exchange rates have adversely impacted the company’s international sales. Management’s guidance for 2015 also forecasts foreign exchange volatility and pension headwinds to hurt EPS growth by approximately 8%.
Since Ecolab has significant exposure to the oil and gas markets, lower crude oil prices may result in reduced demand for its products that are used in drilling activities. We feel that the current decline in oil prices could be a possible strain on projected growth. However, it will result in reduced raw material costs that will likely drive overall margin expansion, which will ultimately boost the bottom line.
Moreover, Ecolab has the ability to leverage investor returns via share repurchases and dividends. Notably, the company raised its quarterly dividend by 20% to $0.33 per share in Dec 2014. In addition, we feel that the new $1 billion share buyback program will boost earnings as well as shareholders’ value in 2015.
Stocks to Consider
Currently, Ecolab carries a Zacks Rank #3 (Hold). Better-ranked stocks in the chemical-specialty space include KMG Chemicals KMG, OM Group OMG and BioAmber BIOA. While both KMG Chemicals and OM Group sport a Zacks Rank #1 (Strong Buy), BioAmber carries a Zacks Rank #2 (Buy).
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