December 19, 2018

ECL – Market expectations are for Uniform ROA improvement, but management has concerns about growth, pricing, and costs


  • Ecolab Inc. (ECL:USA) currently trades above recent averages relative to UAFRS-based (Uniform) Earnings, with a 25.6x Uniform P/E, implying bullish expectations for the firm. However, management has concerns about their ability to expand, increase their prices, and offset rising raw material costs
  • Specifically, management may lack confidence in their ability to find strategic acquisition targets, and to use the Anios brand to expand their business more aggressively. Additionally, they may be exaggerating their ability to increase gross profits if raw material prices stabilize, and may lack confidence in their ability to offset elevated raw material prices. Moreover, they may lack confidence in their ability to increase their prices, and may be concerned about the impact of Diversey’s aggressive pricing on their institutional business. Furthermore, they may be concerned about inconsistent growth trends in the healthcare industry, and may lack confidence in their ability to expand their textile care business
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