On Jan 7, Zacks Investment Research downgraded Ecolab Inc. (ECL) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold).
Why the Downgrade?
Though Ecolab has been consistently delivering good returns, the current challenging macroeconomic conditions are expected to impact the future performance of the company.
However, we believe that the unique business model of the company will be able to sustain the hard times as the demand for safe food and water, clean environments, and energy will eventually rise in the food, healthcare, energy, hospitality and industrial markets.
Ecolab has a vast international presence in more than 170 countries. As a result it is poised to face a major headwind in terms of currency fluctuations. Moreover, ECL is facing severe raw material constraints which pose a threat to its business.
The heavy burden of long term obligations in the balance sheet of Ecolab is also a cause of concern, as high interest payments can bring down the earnings substantially. Additionally, the stiff competition is likely to exert pricing pressure on the company, in turn, increasing the risk of eroding some of its market share.
Ecolab reported earnings per share (excluding special gains and charges and discrete tax items) of $1.04 for the third quarter of 2013. The results were 3 cents ahead of the Zacks Consensus Estimate. However, revenues of $3,484 million lagged the Zacks Consensus Estimate of $3,543 million.
Ecolab narrowed its 2013 adjusted earnings per share guidance to the range of $3.51−$3.55 from the earlier guided range of $3.48−$3.56. The current Zacks Consensus Estimate for 2013 is pegged at $3.55 per share.
Other Stocks to Consider
Investors interested in the chemical specialty industry can look at Globe Specialty Metals, Inc. (GSM), HB Fuller Co. (FUL) and Sensient Technologies Corporation (SXT). All these stocks carry a Zacks Rank #2 (Buy).
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