Reasons to Retain Ecolab Stock in Your Portfolio for Now

Ecolab Inc. (ECL - Free Report) has been performing well thanks to its comprehensive range of products. The positive sentiment is primarily driven by a strong second-quarter 2024 performance, complemented by promising long-term growth opportunities. However, fluctuations in costs remain a concern.

As a Zacks Rank #3 (Hold) stock, Ecolab has seen a remarkable 30.2% increase year-to-date, while the industry has faced an 11.3% decline. In contrast, the S&P 500 Composite has grown by 22.8% during the same period.

With a market capitalization of $73.75 billion, Ecolab is recognized for its water, hygiene, and infection prevention solutions and services. It is projecting a growth rate of 14.9% over the next five years, which adds to the optimism surrounding the stock. The company's earnings have beaten the Zacks Consensus Estimate consistently over the past four quarters, achieving an average surprise of 0.98%.

Reasons Favoring Ecolab’s Growth

Robust Product Portfolio: Ecolab's diverse product lineup has enabled it to enhance its position in specialized global markets. The company offers comprehensive solutions, data-driven insights, and personalized service to ensure food safety and maintain hygienic environments. Its services benefit clients across various sectors, including food, healthcare, hospitality, and industry, in over 170 countries, promoting sustainable practices and optimizing energy and water usage.

Ecolab’s offerings in cleaning, sanitizing, and pest elimination assist customers in sectors such as food service, healthcare, education, and commercial facilities. Moreover, their technologies play a vital role in water treatment, pollution control, energy conservation, and various industrial processes.

Solid Long-Term Growth Prospects: Ecolab's ability to grow its earnings amid economic uncertainties is noteworthy. The management anticipates further improvements in customer attraction and deeper market penetration through ongoing product innovation. According to recent reports, the company experienced significant organic sales growth and an expansion in organic income margin during the second quarter. Key segments, including Pest Elimination, Industrial, and Healthcare, also showed positive performances.

Management attributes the organic operating income margin growth to decreased supply-chain costs and effective pricing strategies. Looking ahead to 2024, the focus will be on sustaining a robust double-digit growth in earnings per share.

Cost Efficiency Programs: In August 2024, Ecolab completed the sale of its global surgical solutions business to Medline for $950 million. This capital will likely enhance the company's ability to pursue growth opportunities and return value to shareholders. Furthermore, the company announced plans to repurchase an additional $500 million of its stock in the latter half of 2024.

On July 30, 2024, Ecolab unveiled the "One Ecolab" initiative, designed to bolster growth and improve margins. Part of this initiative involves a restructuring plan that utilizes digital technologies to centralize operations in global centers of excellence.

Additionally, a cost-savings program initiated in Europe in November 2022 has been expanded to focus on the Institutional and Healthcare sectors. Dubbed The Combined Program, it has already generated $137 million in cumulative cost savings, with an estimated $175 million in annual savings expected by the end of 2024.

Strong Q2 Results: Ecolab's positive second-quarter results support a favorable outlook. The company reported significant increases in both revenue and earnings year-over-year, alongside exceptional performances across various segments. Reduced product costs and effective pricing strategies helped drive encouraging results during the quarter.

The transformation of Ecolab's Global Healthcare division following the sale of its Global Surgical Solutions business also raises optimism for the stock's future performance.

A Factor That May Offset the Gains for ECL

Cost Fluctuations Concerns: Nonetheless, the volatility of raw material prices used in Ecolab’s operations is a concern. In recent times, the company has faced soaring raw material costs due to inflation and supply-chain disruptions. Variability in raw material prices, challenges in securing affordable supplies, or difficulties in renewing contracts can significantly impact Ecolab's financial performance and stability.

Furthermore, fluctuations in economic conditions can disrupt Ecolab’s suppliers, influencing their ability to deliver materials at favorable prices and terms.

Estimate Trend

Currently, Ecolab is witnessing a stable estimate revision trend for 2024. In the past 60 days, the Zacks Consensus Estimate for its earnings has remained unchanged at $6.65 per share. The forecast for the third-quarter 2024 revenue stands at $4.02 billion, reflecting a 1.7% increase compared to the same period last year.

Key Picks

For investors considering alternatives, several better-ranked stocks in the medical sector include Addus HomeCare (ADUS - Free Report), Quest Diagnostics (DGX - Free Report), and RadNet (RDNT - Free Report). Among these, Addus HomeCare holds a Zacks Rank #1 (Strong Buy), while Quest Diagnostics and RadNet are rated Zacks Rank #2 (Buy).

Addus HomeCare boasts a long-term growth rate estimate of 12.1% and has consistently exceeded earnings estimates, averaging 11.5% over the past four quarters. Its stock has surged 85.5% year-to-date, significantly outpacing industry growth.

Quest Diagnostics has a projected long-term growth rate of 6.8% and has also surpassed earnings estimates in its latest four quarters, with an average surprise of 3.3%. Year-to-date, Quest has gained 42%, while its industry has grown by only 14.9%.

RadNet shares have outperformed, with an impressive 93.7% increase year-to-date, in comparison to the industry growth of 14.8%. It too has consistently exceeded earnings estimates, with a notable average surprise of 98.2%.

Ecolab, Stock, Growth