) reached a 52-week high of $72.79 on Friday, Dec 7, 2012. The
closing price of this dental equipment stock as of Dec 7, 2012
was $72.72, reflecting a solid year-over-year return of 33%.
The company's solid third quarter results, the recent
acquisition of Champions Technologies, the divestment of Vehicle
Care business, dividend hike and new product launches are jointly
driving the stock.
On Oct 30, 2012, Ecolab reported adjusted earnings per share
of 87 cents, up 16% 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. This
is Ecolab's biggest acquisition since the company acquired Nalco
The acquisition of Champion Technologies will likely
strengthen Ecolab's market position in North America 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.
Further, as the company gains competitive advantage and makes
headway in the energy market, the divestment of its
underperforming Vehicle Care division will allow it to direct
resources and focus on high growth avenues. In December, Ecolab
successfully completed the sale of its Vehicle Care division to
) for roughly $120 million in cash.
Recently, the company has increased its quarterly cash dividend
to 23 cents from 20 cents, representing a 15% growth. This is the
company's 21st consecutive annual dividend increase, which
reflects its commitment to deliver incremental returns to
investors by leveraging its solid free cash flow and strong
New innovative products such as the latest range of the 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 24.4x, a
56.2% premium to the peer group average of 15.62x. The
price-to-book ratio of 3.50x represents a 12.9% premium to the
peer group average of 3.10x. 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 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
The Clorox Company
Church & Dwight Co. Inc.
). Sluggish European markets and raw material price inflation
also remain headwinds.
We currently have a Neutral recommendation on Ecolab. The
stock carries a short-term Zacks #3 Rank (Hold rating).
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