Merger With NLC Closed; Raising Estimates Above $3 EPS Target; Thoughts on Paper; Raising TP to $62 (from $55).
"Following the closing of the NLC merger, we remain Neutral on ECL as the potential upside in the stock is not enough to get us excited (low $60's over the next 12 months). That said, we believe their 2012 EPS target of $3.00 is very conservative and there is likely upside even in a modest recession. Finally, with the deal closed we believe ECL may look to sell the Paper portion of the NLC business in the New Year."
Estimates: "We have modestly increased our 4Q11 EPS estimate to $0.70 from $0.69 to reflect a higher interest expense and share count for ECL as well as the addition of the NLC portfolio. For 2012, we are modeling in EPS of $3.12 (from $2.80) for the combined entity and believe there could be upside to our estimates. These numbers reflect ECL's conservative $3 estimate they announced with the initial bid for ECL as well as the impact of the subsequent $1 bil share repurchase plan that was announced. For 2013 our estimates call for EPS of $3.62 (from $3.18), reflecting continued improvement in the ECL European margins as well as modest cost synergies from NLC."
Paper: "We believe ELC may look to sell the NLC paper business come 2012, which could be a catalyst for the name (depending on price), as it would ensure a better growth rate and less raw material volatility."
Based on our new 2012 estimate we are raising our price target on ECL to $62 (from $55). "While this is relatively decent upside, given the anemic valuations in the space, we believe investors have an opportunity to see greater returns (even risk adjusted) elsewhere in the space. As such, we would wait for a pullback before getting more constructive."
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
