Reasons to Retain Ecolab Stock in Your Portfolio for Now

Ecolab Inc. (ECL - Free Report) has recently shown impressive performance, particularly after a strong second-quarter 2024 report. With a solid product lineup and promising long-term growth prospects, Ecolab continues to garner positive attention in the market. However, investors should also be aware of the ongoing concerns regarding cost fluctuations.

This stock currently holds a Zacks Rank of #3 (Hold) and has gained 30.2% year to date, significantly outpacing the industry average decline of 11.3%. In comparison, the S&P 500 has seen a 22.8% increase in the same timeframe.

Ecolab, a leader in water, hygiene, and infection prevention solutions, boasts a market cap of approximately $73.75 billion. The company anticipates 14.9% growth over the next five years and has consistently exceeded earnings expectations, with an average surprise of 0.98% over the past four quarters.

Reasons Favoring Ecolab’s Growth

Robust Product Portfolio: Ecolab’s diverse range of products has solidified its position in a specialized global market. The company delivers comprehensive solutions and data-driven insights to enhance food safety and create clean environments. Their services support various sectors, including food, healthcare, hospitality, and industry, spread across more than 170 countries. Ecolab’s offerings cover cleaning, sanitizing programs, and pest elimination, assisting clients in maintaining efficiency and sustainability while minimizing water and energy use.

The company’s technologies also play a crucial role in water treatment, pollution control, and other vital industrial processes, including energy conservation and refining.

Solid Long-Term Growth Prospects: Ecolab has demonstrated remarkable earnings growth despite economic uncertainties. The management is hopeful about attracting new customers and enhancing penetration via innovative product development.

In the second quarter, Ecolab experienced significant growth in organic sales and income margin. The Institutional & Specialty segment displayed strong performance, while sectors such as Pest Elimination, Industrial, and Healthcare also improved.

The growth in organic operating income margin was attributed to declining supply chain costs, effective pricing strategies, and increased volumes, outweighing investments in growth. Looking ahead to 2024, the focus will remain on sustaining consistent double-digit earnings per share growth.

Cost Efficiency Programs: In August 2024, Ecolab finalized the sale of its global surgical solutions business to Medline for $950 million, providing a boost to its investment capacity and shareholder returns. The company also revealed plans to repurchase up to an additional $500 million of its shares in the latter half of 2024.

On July 30, 2024, Ecolab unveiled the One Ecolab initiative, aiming to enhance growth and margin expansion. This includes a restructuring plan to leverage digital technologies and reorganize work processes into global centers of excellence.

The management approved a Europe cost-savings program in November 2022, later expanding it in February 2023 to encompass the Institutional and Healthcare sectors in other regions. Dubbed The Combined Program, this approach has generated $137 million in cumulative cost savings, targeting $175 million in annual savings by 2024.

Strong Q2 Results: Ecolab’s promising second-quarter performance fuels optimism, with notable progress in both sales and profits across most segments. A reduction in product costs and increased sales volumes further support this positive outlook.

The decision to divest the Global Surgical Solutions business aims to transform Ecolab’s Global Healthcare division, which is expected to positively influence the stock's performance.

A Factor That May Offset the Gains for ECL

Cost Fluctuations Concerns: Fluctuations in raw material prices remain a concern for Ecolab. Recent years have seen increases in raw material costs due to inflation and supply chain disruptions. Volatility in raw material pricing and the availability of suitable alternatives can impact the company’s financial health and operational results.

Furthermore, economic disruptions could hinder Ecolab’s suppliers' performance, affecting their ability to provide necessary materials at favorable prices, potentially impacting the overall business.

Estimate Trend

Currently, Ecolab is seeing stable earnings estimates for 2024. Over the last two months, the Zacks Consensus Estimate for earnings remains steady at $6.65 per share.

For Q3 2024, projected revenues are estimated at $4.02 billion, reflecting a 1.7% increase compared to the previous year's figures.

Key Picks

In the broader medical field, some noteworthy stocks include Addus HomeCare (ADUS - Free Report), Quest Diagnostics (DGX - Free Report), and RadNet (RDNT - Free Report). While Addus HomeCare enjoys a Zacks Rank of #1 (Strong Buy), both Quest Diagnostics and RadNet hold a Zacks Rank of #2 (Buy).

Addus HomeCare projects a long-term growth rate of 12.1% and has consistently surpassed earnings expectations. Its shares have appreciated 85.5%, contrasting with the industry’s 16.9% growth year to date.

Quest Diagnostics has an estimated long-term growth rate of 6.8%, achieving average earnings surprises in the last four quarters. The company has gained 42%, outperforming the industry's 14.9% rise year to date.

RadNet has also consistently exceeded earnings expectations, with a staggering 98.2% average surprise in the last quarters, with year-to-date growth at 93.7% against the industry's 14.8%.

Ecolab, Growth, Stock