What you don't know about Ecolab will keep you from investing in this growth company that's been increasing its dividend every year since 1986. And that kind of dividend record puts this company solidly on the list of Dividend Aristocrats.
Ecolab is a specialty chemical company disguised as a cleaning company. The company develops products and services for hospitals, hotels and water treatment facilities everywhere in the world. It's also recently introduced anti-microbial fruit and vegetable treatments for the food industry and waste water treatments for the oil and gas extraction industry.
- Company delivers products and services for the energy, healthcare, industrial, hospitality, food service, and oil and gas sectors.
- More than half of their employees work directly with their customers on training and support of the effective and efficient use of chemicals.
- Company expects 18%-25% earnings growth in the first quarter 2014 and strong double digit growth for the entire year.
- Bill Gates is the largest shareholder with a 10.9% stake.
Ecolab Inc. (ECL) develops and markets programs, products, and services for hospitality, foodservice, healthcare, industrial, and energy markets worldwide. It operates through four segments: Global Industrial, Global Institutional, Global Energy, and Other. The company offers cleaners and sanitizers for washing dishes, glassware, flatware, foodservice utensils, kitchen equipment, laundries, and general housekeeping functions; food safety products and equipment, water filters, dishwasher racks, and related kitchen sundries; pool and spa treatment programs; janitorial cleaning and floor care products; chemical dispensing device systems; and dishwashing machines, detergents, and rinse additives. It also provides lubricants, animal health products, cleaning systems, electronic dispensers, chemical injectors, and antimicrobial products; clean-in-place process control and facility cleaning systems; hard surface cleaners, degreasers, polishes, hand care products, and assorted cleaning tools and equipment; and infection prevention and other healthcare related products. In addition, the company offers textile care products and services; pest elimination services to detect, eliminate, and prevent pests; food service equipment repair and maintenance services; products and programs for water treatment and process applications, including cooling water and boiler water applications, raw water/potable water preparation, and wastewater applications. Further, it provides paper services for the papermaking process and across various grades of paper; and energy solutions, including well stimulation and completion, oilfield, enhanced oil recovery, downstream refining, downstream chemical processing, and water treatment solutions. The company sells its products through field sales personnel, distributors, and dealers. Ecolab Inc. was founded in 1923 and is headquartered in St. Paul, Minnesota. (Daily Chart) (Weekly Chart)
10 May 2014
1yr Target $117.94
1yr Cap Gain 12.59%
1yr Tot Return 13.64%
3yr DGR 14.31%
5yr DGR 12.61%
Payout Ratio 30.37%
EPS (ttm) $3.25
EPS next yr $4.82
Global Food & Beverage Sales are increasing at a rate of 9% and is led by the beverage and brewing, dairy, and agribusiness segments. Global Food & Beverage continues to benefit from its total plant assurance approach to customers in which they combine industry-leading Cleaning & Sanitizing, water treatment and pest elimination capabilities to deliver improved food safety, lower operating costs and better product quality assurance for their customers.
Global Water sales are increasing at a rate of 5%. Gains in this sector were led by good growth in the heavy, light and mining businesses.
Global Paper sales continue to increase at the rate of 5% per year and are expected to show modest sales growth going forward as the penetration of new business and technology more than offset the challenging paper market conditions.
Global Institutional sales are increasing at the rate of 4% but the end markets remain tough as modest growth in global lodging demand remains a challenge for the food service industry across both North America and Europe.
With a background of internal robust growth and growth through acquisitions, Ecolab is poised to gain even more momentum by aggressively pursuing additional acquisitions. Ecolab acquired Champions to become a giant in the oilfield chemical business with the additional benefit of reducing competition for its Nalco subsidiary. The acquisition will also beef up Ecolab's Global Energy Services and allow it to expand even further into the North American energy market.
Revenue growth rates exploded in 2012 with the acquisition of Nalco and are expected to increase even further with the addition of revenues from the Champion acquisition in late 2013. Earnings are also increasing and have shown a boost in the more recent years. All of this is also resulting in a nice increase in the growth rate of dividend increases. As can be seen in the chart below, even with a falling payout ratio the dividend is increasing at a very healthy rate. With earnings estimates moving higher with the acquisition of Champion Technologies, dividend estimates are also increasing. This is exactly what both growth investors and dividend growth investors like to see. The singular blemish on the company's fundamentals is a current P/E of 32. Going forward this P/E drops to 25 in 2014 and to 21 in 2015. From a traditional view of fundamental analysis, this is certainly no bargain. Any investor considering buying this stock needs to balance this information against the increasing revenue, earnings and dividend growth rates.
Revenue Growth Rates
3yr = 29.31% 5yr = 16.66% 10yr = 13.42%
Earnings Growth Rates
3yr = 12.19% 5yr = 11.91% 10yr = 11.54%
Dividend Growth Rates
3yr = 14.31% 5yr = 12.61% 10yr = 12.71%
On the weekly chart the stock has been moving sideways since last fall as it digests the strong move that occurred earlier in the year. It's currently bouncing between it's Bollinger Bands at around 98 and 111. Based on this information a fall to a price below 100 appears to be a good entry point. The RSI, MACD and ADX are all retreating toward their equilibrium point as can be expected from a stock that's moving sideways. Generally the timing of buys and sells can be further enhanced by using Stochastics indicators during periods of sideways movements. Investors interested in trading or investing in Ecolab may wish to view the Full Stockastics indicator before committing funds.
I also think that although the price of this company's stock is currently a little pricey, it'll probably remain pricey for some time to come. While I would like to buy any stock at the best possible price, this stock may not get cheap any time soon so if I want to accumulate a position in this stock I'll need to buy odd lots and build up a position over time at the best prices I can get at the time. My strategy will be to begin buying this stock in the next few days and then add to my position on dips as they occur. I believe that the P/E ratio will remain high (unfortunately) because their pursuit of sales to the energy sector will only increase as "fracking" becomes a world wide phenomenon. I would not be surprised to see this stock double to approximately $200 per share within the next four years, simply based upon estimates of revenues and earnings going forward.
Good Luck and Good Trading.