) reached a 52-week high of $72.00 on Thursday, November 29,
2012. The closing price of this dental equipment stock as of
September 28, 2012 was $71.81, which represented a solid
year-over-year return of 31.2%.
Several factors such as the company's solid third quarter
results, the recent acquisition of Champions Technologies, the
divestment of Vehicle Care and new product launches are driving
On October 30, 2012, Ecolab reported adjusted earnings per
share of 87 cents, representing a 16% jump from the year-ago
earnings of 75 cents per share. Despite the restructuring and
integration expenses related to the Nalco merger, profit
attributable to Ecolab in the reported quarter climbed 54% year
over year to $238 million (or 80 cents per share).
On a fixed currency basis, revenues grew 7% in comparison with
the year-ago pro forma fixed currency sales (inclusive of the
Nalco operations). Growth was triggered by higher sales from
Global Energy, Healthcare, Latin America and worldwide Kay as
well as the Pest Elimination franchises.
Moreover, in an effort to expand its Global Energy Services
franchise, Ecolab agreed to acquire privately-owned Champion
Technologies and its related company Corsicana Technologies for
$2.2 billion, in cash and stock. This is Ecolab's biggest
acquisition since the company acquired Nalco in 2011.
The acquisition of Champion Technologies is likely to
strengthen Ecolab's market position and help the company benefit
from one of the fastest growing industries in the U.S. Following
the closure, the company is slated to become a giant in the
oilfield chemical business.
The buyout will enhance Ecolab's operating scale in North
America. Moreover, the correlated technology and consumer base
ensure that the deal is a strategic fit for the company as the
combined venture will be well-positioned in the global energy
Ecolab envisages incremental returns as reflected in its higher
expected return on invested capital. Despite the high cost, the
deal structure will enable Ecolab to maintain a strong investment
grade balance sheet as the company expects to return to 'A range'
metrics within three years.
Further, as the company gains competitive advantage and makes
headway in the energy market, the divestment of its
under-performing Vehicle Care division will allow it to direct
resources and focus on high growth avenues. Ecolab has agreed to
sell its Vehicle Care division to Atlanta, Georgia-based Zep Inc.
(ZEP) for roughly $120 million in cash.
Moreover, de-leveraging remains a looming concern for Ecolab due
to long-term debt of $4.9 billion and a $1.7 billion cash payment
for the latest acquisition. Thus, the sale of the Vehicle Care
division will garner additional funds for the company.
New innovative products such as the latest range of USDA
BioPreferred and Green Seal certified bio-based hard surface
cleaners, along with the KAY Filter Pouch Cleaner and the
Greaselift non-corrosive and biodegradable kitchen degreasing
solution are slated to drive segment sales.
Earnings Estimate Revision
For fiscal 2013, the Zacks Consensus Estimate rose by 2.3%
over the last 60 days to $3.59 per share, implying year-over-year
growth of 20.31%.
The company currently trades at a forward P/E of 24.1x, a
55.5% premium to the peer group average of 15.50x. The
price-to-book ratio of 3.50x represents a 12.5% premium to the
peer group average of 3.11x. Given Ecolab's strong business
fundamentals, the premium is justified.
Ecolab has a trailing 12-month ROE of 13.5% compared with the
peer group average of 18.0%.
About the Company
St. Paul, Minnesota-based Ecolab serves the food service, food
and beverage processing, healthcare, energy, water treatment and
hospitality markets both in the U.S. as well as internationally.
The company continues to invest in strategic areas such as health
care, food, water and energy and global pest elimination to
expand its business.
Although we are impressed by Ecolab's strong international
exposure, we remain cautious about currency fluctuations and
aggressive competition from the likes of
Church & Dwight
). Raw material price inflation also remains a headwind.
We currently have a 'Neutral' recommendation on Ecolab. The
stock carries a short-term Zacks #3 Rank (Hold rating).
CHURCH & DWIGHT (CHD): Free Stock Analysis
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ECOLAB INC (ECL): Free Stock Analysis Report
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