Proprietary Data Insights
Financial Pros Top Speciality Chemical Stock Searches This Month
Profit While Saving The Planet
According to the Wall Street Journal, ESG has $2.7 trillion in global sustainable fund assets. If you don’t know what that is, ESG stands for Environmental, Social, and Governance.
They are basically companies that not only look to profit and enhance value to shareholders but also make it a point to improve the environment and create sustainability.
For example, Starbucks (SBUX) has pledged to cut carbon, water, and waste footprints in half by 2030. Walmart (WMT) wants zero emissions by 2040, and to be using 100% renewable energy by 2035.
In order to execute their vision, they have partnered up with Ecolab (ECL).
Ecolab isn’t the highest on our list of search results for specialty chemical companies, landing at #7.
However, it’s unlike any of the others on the list specifically because of the products it provides.
So who exactly is Ecolan and are they worth an investment?
Check out our analysis below…
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Ecolab (ECL) offers water, hygiene, and infection prevention solutions to businesses. Its customers come from more than 40 different industries, and over 170 countries.
The company global powerhouse with $13 billion in annual sales, a trusted partner at nearly 3 million customer locations, and a staff of over 47,000 associates.
Kraft Heinz, Hilton, Walmart, McDonald’s, Coca-Cola, Starbucks, Microsoft, Abbott, Archer Daniels Midland, Marriott, Shell, Manchester United, and Cargill are just a few of its customers.
ECL breaks its business down into the following segments:
Global Institutional & Speciality
The industrial business is the firm’s largest revenue driver. It provides water treatment, process applications, cleaning, and sanitizing solutions to sectors like manufacturing, food and beverage processing, chemical, power generation, pulp and paper, and commercial laundry.
Global Healthcare & Life Sciences.
ECL believes there are several opportunities to grow its business, specifically, the food and beverage, food services, heavy industries, and health care sectors.
It has a significant competitive advantage, utilizing its scale, global reach, product technology, sales force, brand, data, and actionable insights.
With inflation running out of control, interest rates spiking, and uncertainty in the economy rising, investors want to know if companies have the financial resources to weather the storm.
When sifting through the numbers, you’ll quickly notice that ECL has strong and consistent financials, free cash flow, and steady returns.
In fact, ECL has increased its cash dividend for 30 consecutive years. And from 2012-2021, it repurchased $4.2 billion worth of stock and distributed $4.3 billion in dividends.
Furthermore, ECL is a cash cow, generating $1.94 billion from its operations, which is significantly better than the sector median of $380 million.
It helps that its gross margin is so strong, sitting at 40.14%, which is better than the sector median of 32.39%
And while it’s not at the revenue levels it was pre-pandemic, the numbers are rising, and looking up.
ECL believes it can continue to attract investors by increasing the dividend to be in line with its EPS growth, acquisitions, and share buybacks.
It’s aiming for 6-8% sales growth and 15% EPS growth.
ECL has a current ratio of 1.27x, which indicates it has enough assets to cover and short-term liabilities.
ECL has a P/E ratio of 40.5x which is below its 5-year average of 41.23x. But some may consider it high when compared to the S&P 500, which is around 20x.
However, it’s worth noting that the Non-GAAP P/E ratio sits at 33.11x, and the forward Non-GAAP and GAAP P/E ratios are closer to this number as well.
While its price-to-sales ratio is 3.4x, and less than its 5-year average of 3.84x, it is still relatively high for the materials sector, where the sector median is 1.14x.
But investors don’t mind paying a premium as long as it continues to deliver profits the way that it has. At 40.1%, it has one of the highest gross profit margins in its space. And its EBIT Margin of 14.2% and EBITDA margin of 20.85% sits at the top of the food chain.
With so much attention on the environment, water scarcity, and ESG in general, it should come as no surprise that ECL is growing revenues at a double-digit pace, 12.53% (YoY).
Furthermore, ECL boasts an impressive CAPEX growth (YoY) of 55.5%, which is considerably better than the sector median of 32.4%
Our Opinion – 8/10
ECL is a dividend growth stock in an emerging sector, ESG. In fact, it’s a pure play on ESG, and one of the best companies in the space.
No wonder, Bill Gates has it as fifth largest holding, owning a 1.5% stake in ECL.
It’s going to be a major player tackling global issues like water scarcity, water climate, C02 emissions, and climate change.
We believe this stock is a winner 12-24 months, and beyond. We believe buying on the dip here could prove to be profitable.
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