Jefferies Analyst Reaffirms Rating on Ecolab Inc (ECL) Post Q3 Results

By Carrie Williams

Ecolab, analyst comments post latest earningsIn a report published today, Jefferies analyst Laurence Alexander maintained their Hold rating and a $125 price target on Ecolab Inc. (NYSE: ECL), one of the largest publicly traded company in the cleaning products industry. The $125 price target is an upside of 10.8% from the current share price of $112.81.

Ecolab had announced its Q3 results last Tuesday, November 1 and had reported an in-line EPS and revenue miss for the quarter. ECL had declared a Q3 EPS of $1.28 which was in-line with street consensus and $0.04 above Jefferies estimates, as well as revenue of $3.39 billion (-1.7% YoY) which was lower than consensus by $100 million.

The sales declined by 2% YoY while profits were flat (+5% exF/X). Global Institutional sales reported a 4% increase (+4% profits, -60bps margin) and the Global Industrial sales also increased by 2% (+11% profits, +160bs margins). The Energy sales declined by 8% (-9% profit, margins -10bps YoY) while other sales increased by 8% (+12% profit, +60bps margin).

Alexander believes that although Ecolab is currently a mixed bag, the share prices could bounce back to higher levels thanks to some major drivers like increased wage growth and consumer confidence, possible boost to Institutional sales and EBIT because of QSR and hospitality demand, new contract wins in healthcare and F&B, improved product mix, as well as slowdown in decline in Energy with an improvement in energy prices and rig count. Despite having negatives like F/X expected to be a $0.02 headwind in Q4 and higher raw material costs expected in 2017, the brokerage firm expressed confidence that price hikes and productivity gains would be able to offset those concerns.

The recent $40 million M&A of N.C.-based Swisher Hygiene Inc. (SWSH) is projected to add three percentage points of growth for ECL, resulting in Jefferies analyst modeling a $4.1 billion ($13.96/share) in cumulative FCF from 2016E and 2018E for the company. Alexander also estimates that the repurchases will add $0.05 to annual EPS in 2016E and 2017E for ECL.

Based on the recent recommendations by analysts on Ecolab, the overall consensus rating on the stock is  a Moderate Buy with $127.29 price target, according to TipRanks.