Ecolab Inc. ECL has been gaining from its solid product portfolio. The optimism, led by a solid third-quarter 2024 performance, along with solid long-term growth prospects, is expected to contribute further. However, concerns arising from cost fluctuations persist.
This Zacks Rank #3 (Hold) stock has rallied 24.7% year to date against the industry’s 12.4% decline. The S&P 500 Composite has increased 25.7% during the same time frame.
The renowned water, hygiene and infection prevention solutions and services provider has a market capitalization of $69.9 billion. It projects 15% growth for the next five years and expects to maintain a strong performance in the future. Ecolab’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 0.79%.
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Reasons Favoring Ecolab’s Growth
Solid Long-Term Growth Prospects: Ecolab’s considerable earnings growth despite macro uncertainties continues to impress. Management remains optimistic regarding improvement in its ability to attract new customers and opportunities for greater customer penetration through new product development.
Per management, Ecolab witnessed a strong third quarter with significant growth in organic sales and expansion in organic income margin. Per management, the Institutional & Specialty segment led to robust sales, thus continuing to significantly outperform end-market trends. Performance across the Pest Elimination, Industrial and Healthcare segments also improved.
Per management, growth in organic operating income margin can be attributed to lower supply-chain costs, value pricing and volume growth more than offset growth-oriented investments in the business. Management affirmed that in 2024, their focus remains on fueling Ecolab’s strong and consistent long-term double-digit earnings per share growth.
Cost Efficiency Programs & Restructuring Activities: In August 2024, Ecolab announced the closure of the sale of its global surgical solutions business to Medline for $950 million in cash. The proceeds from this transaction are likely to enhance the company’s ability to invest in attractive growth opportunities and return capital to shareholders.
On July 30, 2024, Ecolab announced the One Ecolab initiative, which is likely to enhance its growth and margin expansion journey. As a program within this initiative, the company announced that it commenced a restructuring plan to leverage its digital technologies to realign the functional work done in many countries into global centers of excellence.
In November 2022, Ecolab’s management approved a Europe cost-savings program. In February 2023, the company expanded this program to focus on its Institutional and Healthcare businesses in other regions. The expanded program, called The Combined Program, has delivered $167 million of cumulative cost savings with estimated annualized cost savings of $175 million in continuing operations by the end of 2024.
Strong Q3 Results: Ecolab’s solid third-quarter 2024 results buoy optimism. The company registered a robust year-over-year uptick in its bottom line and growth in its organic revenues. Growth in revenues was driven by strong performance in the Institutional & Specialty and Industrial segments. Lower delivered product costs, value-based pricing and volume growth during the quarter were encouraging.
Per Ecolab, the completion of the sale of its global surgical solutions business marks a strategic shift for the company, enabling it to focus on its core competencies in infection prevention and instrument reprocessing. In the third quarter, ECL’s gross and operating margin expanded 230 and 250 basis points, respectively. This bodes well for the stock.
A Factor That May Offset the Gains for ECL
Compliance Risks: Ecolab’s business is subjected to various laws and regulations relating to the environment, including evolving climate change standards and general business conduct. Compliance with these laws and regulations exposes the company to potential financial liability and increased operating costs. Regulation of the company’s products and operations continues to increase with more stringent standards, increasing the cost of operations and the potential for liability if a violation occurs.
Ecolab also seeks to incorporate AI capabilities into the development of technologies, business operations, and within its products and services. AI technology is complex and rapidly evolving and may subject ECL to significant competitive, legal, regulatory, operational and other risks.
Estimate Trend
Ecolab is witnessing a stable estimate revision trend for 2024. In the past 60 days, the Zacks Consensus Estimate for its earnings has remained stable at $6.65 per share.
The Zacks Consensus Estimate for the company’s fourth-quarter 2024 revenues is pegged at $4 billion, indicating a 1.5% improvement from the year-ago quarter’s reported number.
Key Picks
Some better-ranked stocks from the medical industry are Masimo MASI, AngioDynamics ANGO and Globus Medical GMED.
Masimo, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 10.4% for 2025. You can see the complete list of today’s Zacks #1 Rank stocks here.
MASI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 17.10%. Masimo’s shares have risen 37.2% year to date compared with the industry’s 6.7% growth.
AngioDynamics, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 38.2% for 2025. ANGO’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 31.71%.
AngioDynamics’ shares have lost 8.9% year to date against the industry’s 6.7% growth.
Globus Medical, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 12.7%. GMED’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.1%. Its shares have risen 56.5% year to date compared with the industry’s 6.7% growth.
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