Ecolab Inc Valuation – June 2016 $ECL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Ecolab Inc (ECL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Ecolab Inc. provides water, hygiene and energy technologies and services. The Company’s segments include Global Industrial, Global Institutional, Global Energy, Other and Corporate. The Global Industrial segment consists of the Water, Food and Beverage, Paper and Textile Care operating units. The Global Institutional segment consists of the Institutional, Specialty and Healthcare operating units. The Global Energy segment provides on-site and technology-driven solutions to the global drilling, oil and gas production, refining and petrochemical industries. The Other segment consists of the pest elimination and equipment care operating units. The Company’s cleaning and sanitizing programs and products, pest elimination services and equipment maintenance and repair services support customers in the foodservice, food and beverage processing, hospitality, healthcare, government and education, retail, textile care and commercial facilities management sectors in approximately 170 countries.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of ECL – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $34,560,575,486 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.01 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 121.76% Pass
6. Moderate PEmg Ratio PEmg < 20 31.40 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.27 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.01 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 143.58 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ECL value chart June 2016

EPSmg $3.71
MG Growth Estimate 11.59%
MG Value $117.40
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $53.74
MG Value based on 0% Growth $31.50
Market Implied Growth Rate 11.45%
Current Price $116.37
% of Intrinsic Value 99.12%

Ecolab Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.09 in 2012 to an estimated $3.71 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 11.45% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Ecolab Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

ECL charts June 2016

Net Current Asset Value (NCAV) -$25.36
Graham Number $46.97
PEmg 31.40
Current Ratio 1.01
PB Ratio 5.27
Current Dividend $1.36
Dividend Yield 1.17%
Number of Consecutive Years of Dividend Growth 20


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $4,194,900,000
Total Current Liabilities $4,159,500,000
Long-Term Debt $5,082,800,000
Total Assets $18,341,800,000
Intangible Assets $10,506,000,000
Total Liabilities $11,760,400,000
Shares Outstanding (Diluted Average) 298,300,000

Earnings Per Share History

Next Fiscal Year Estimate $4.37
Dec2015 $3.32
Dec2014 $3.93
Dec2013 $3.16
Dec2012 $2.35
Dec2011 $1.91
Dec2010 $2.23
Dec2009 $1.74
Dec2008 $1.80
Dec2007 $1.70
Dec2006 $1.43
Dec2005 $1.23
Dec2004 $1.19
Dec2003 $1.06
Dec2002 $0.80
Dec2001 $0.73
Dec2000 $0.78
Dec1999 $0.66
Dec1998 $0.72
Dec1997 $0.50
Dec1996 $0.42

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.71
Dec2015 $3.23
Dec2014 $3.03
Dec2013 $2.48
Dec2012 $2.09
Dec2011 $1.93
Dec2010 $1.89
Dec2009 $1.67
Dec2008 $1.58
Dec2007 $1.42
Dec2006 $1.24
Dec2005 $1.09
Dec2004 $0.99
Dec2003 $0.86
Dec2002 $0.75
Dec2001 $0.71
Dec2000 $0.67

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
ECOLAB Inc. Annual Valuation – 2015 $ECL
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Ecolab Inc. (ECL) Annual Valuation

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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