SCSU Investment Club - Equity Research - Ecolab (ECL)
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The report analyzes Ecolab stock and recommends holding the position. It notes that while Ecolab faced issues in Q1 2015 from currency headwinds and low oil prices, Q2 earnings improved. It expects Ecolab to overcome recent problems through strategic acquisitions, new revenue streams, and opportunities from guidance cuts leaving room for avoided future issues. The report also provides Ecolab's business description as a leader in cleaning and sanitation products, and notes it has a strong market position compared to its much smaller sole competitor Diversey.
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SCSU Investment Club - Equity Research - Ecolab (ECL)
- 1. Investment Club Nick Gearhart Equity Research Analyst 763.567.0339 Invest@stcloudstate.edu Sunday, September 27th 2015 Ecolab Portfolio HOLD NYSE | ECL | 110.46 USD | 35.57B 135.00 USD |1 Year Price Target Sector: Basic Materials Industry: Chemicals Cap: Large Earnings: Q2 2015 proved that Ecolab could improve earnings from Q1 2015 issues in regards to currency headwinds and energy. Q2 sales were +2% with acquisition adjusted fixed currency sales. Continued expansion on operating margin is expected to grow. Q2 was solid for Ecolab and forecasts for Q3 on November 2nd seem to take negative aspects from Q1 and exploit them, for example by taking advantage of the low oil price environment. *This report is published for educational purposes only by students who are actively managing the Investment Fund at St. Cloud State University *Sources include: Bloomberg Professional, Fidelity, and Morningstar Investment Summary: Given the recent problems Ecolab has encountered in regards to cutting 2015 guidance of earnings on energy and currency headwinds, we decide to hold this position in our fund. In our view, Ecolab will be able to overcome this setback through the various catalysts: Strategic Acquisitions: Ecolab has been busy acquiring smaller companies that operate in a similar fashion. This has strengthened its product offering and operations. New Revenue Streams: Ecolab is able to generate revenue in not only new segments, but also in new geographical regions. The company now provides water and energy-focused businesses to its legacy and sanitation services. Fair Valuation: With a guidance cut in Q1 of 2015 leaves the opportunity for Ecolab to find ways to avoid a similar problems going forward by generating more revenue in other segments outside of energy- focused businesses. Ecolab is in the 70th industry percentile with a P/E ratio of 27.21 relative to chemicals industry average of 20.57, which displays strength from investors avoiding an overvalued metric. ECL SPX ECL 03.24.2011 | 7 shares | $48.20 Annualized Return = 20.74% % of Fund = 3.27% Business Description: Ecolab produces and markets cleaning and sanitation products for the hospitality, health-care, and industrial markets. The firm is the global market share leader in this category with a wide array of products and services, including dish and laundry washing systems, pest control, infection control products, and kitchen equipment repair services. The company has a strong hold on the U.S. market and is looking to increase its profitability abroad. Competitor Analysis: Ecolab provides such unique products and services that surpass any relatable direct competitors. Diversey, Ecolabs largest competitor, generates nearly half the amount of revenue on an annual basis relative to Ecolab. Ecolab controls nearly 10% of the $60B global market. Strong market position in each segment of revenue is what has set Ecolab apart from competitors and will continue to do so going forward. Competitors Firm Market Cap P/E ECL 35.57 B 29.67 PG 200.1 B 30.49 JNJ 263.0 B 16.75 CLX 15.4 B 27.48