Stifel keeps Ecolab stock at Buy, optimistic on long-term OPM margin target

On Tuesday, Stifel expressed continued confidence in Ecolab Inc . (NYSE:ECL), maintaining a Buy rating and a price target of $283.00. The firm's assessment followed Ecolab's recent financial performance, which, despite revenues falling slightly short of expectations, showcased better-than-anticipated results in other key areas. Adjusted EBIT (earnings before interest and taxes) and EPS (earnings per share) exceeded forecasts, and the company's free cash flow (FCF) was notably higher than projected.

Ecolab's volume growth has returned to 2%, a recovery from the previous quarter's dip to 1%. This rebound is seen as a positive sign, aligning with Stifel's long-term outlook for the company. Stifel's thesis is based on the expectation that Ecolab will steadily progress toward a 20% adjusted operating profit margin (OPM) over the coming years. The third-quarter margin expansion, which was 50 basis points above Stifel's projections, appears to support this thesis.

Additionally, Ecolab has updated its adjusted EPS guidance, suggesting an increase, although it was anticipated that the figures would likely reach the higher end of the previous guidance range. The consensus and Stifel's own estimates for the fourth-quarter EPS are currently around the midpoint of the updated guidance range provided by Ecolab.

The strong FCF generated in the quarter enabled Ecolab to repurchase 1.9 million shares, signaling confidence in the company's financial health and future prospects. Ecolab has scheduled its earnings call for 1:00 p.m. EST on Tuesday, where further details and insights into the company's performance and strategies are expected to be discussed.

In other recent news, Ecolab Inc. reported third-quarter earnings per share (EPS) of $1.83, slightly surpassing the consensus forecast of $1.82. The company's industrial segment performed slightly better than expected, and its healthcare segment showed solid progress. Ecolab also provided fourth-quarter guidance, forecasting an EPS between $1.75 and $1.85, aligning with Wolfe Research's projection of $1.81.

Jefferies analyst recently upgraded Ecolab from Hold to Buy, citing the company's integration of Internet of Things (IoT) technology as a key driver for growth. Piper Sandler increased the price target for Ecolab to $305, maintaining an Overweight rating. Baird analysts also raised their price target on Ecolab shares to $271.00, keeping a Neutral rating.

RBC Capital Markets increased its price target for Ecolab to $306, maintaining an Outperform rating on the stock. This followed a marketing event with Ecolab's CEO, Christophe Beck, who emphasized the company's commitment to solid margin expansion. Ecolab also reported a significant 35% increase in adjusted earnings for the second quarter of 2024 and raised its full-year earnings growth outlook to between 25% and 29%.

Lastly, Ecolab continues to maintain its dividend streak, declaring a dividend of $0.57 per common share, indicating the company's financial stability and commitment to shareholder value.

InvestingPro Insights

Ecolab's recent financial performance and Stifel's positive outlook are further supported by data from InvestingPro. The company's market capitalization stands at an impressive $72.37 billion, reflecting its significant presence in the industry. Ecolab's revenue for the last twelve months as of Q2 2024 reached $15.63 billion, with a growth rate of 5.89%, indicating steady expansion in line with Stifel's observations on volume growth recovery.

InvestingPro Tips highlight Ecolab's strong dividend history, having raised its dividend for 38 consecutive years and maintained payments for 54 years. This consistent dividend growth, coupled with a current yield of 0.89%, underscores the company's financial stability and commitment to shareholder returns. Additionally, Ecolab's profitability is emphasized by another InvestingPro Tip, noting that the company has been profitable over the last twelve months, aligning with Stifel's positive assessment of its financial performance.

The stock's impressive one-year price total return of 64.53% and its current trading near its 52-week high (97.65% of the high) reflect strong investor confidence, potentially influenced by the company's solid financial results and positive analyst outlooks like Stifel's.

For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Ecolab, providing deeper insights into the company's financial health and market position.

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