Chemicals Stocks

Ecolab Inc Valuation – January 2019 $ECL

Company Profile (excerpt from Reuters): Ecolab Inc., incorporated on February 18, 1924, provides water, hygiene and energy technologies and services. 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 over 170 countries. The Company’s segments include Global Industrial, Global Institutional, Global Energy, Other and Corporate. Its products and technologies are also used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking, papermaking, mining, and other industrial processes.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ECL – January 2019

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 $43,316,505,468 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 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 143.03% Pass
6. Moderate PEmg Ratio PEmg < 20 32.73 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.50 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 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.14 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

EPSmg $4.57
MG Growth Estimate 7.67%
MG Value $109.08
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $66.32
MG Value based on 0% Growth $38.88
Market Implied Growth Rate 12.11%
Current Price $149.70
% of Intrinsic Value 137.24%

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 Overvalued after growing its EPSmg (normalized earnings) from $3.03 in 2014 to an estimated $4.57 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.11% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Ecolab Inc. revealed the company was trading above its Graham Number of $54.54. The company pays a dividend of $1.52 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 32.73, which was above the industry average of 20.47. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.39.

Ecolab Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.39
Graham Number $54.54
PEmg 32.73
Current Ratio 1.34
PB Ratio 5.50
Current Dividend $1.52
Dividend Yield 1.02%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $4,822,300,000
Total Current Liabilities $3,589,800,000
Long-Term Debt $6,334,800,000
Total Assets $19,962,600,000
Intangible Assets $10,898,800,000
Total Liabilities $11,979,600,000
Shares Outstanding (Diluted Average) 293,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.02
Dec2017 $5.13
Dec2016 $4.14
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 $1.09
Dec2003 $1.06
Dec2002 $0.75
Dec2001 $0.72
Dec2000 $0.78
Dec1999 $0.65
Dec1998 $0.72

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.57
Dec2017 $4.21
Dec2016 $3.63
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 $1.41
Dec2006 $1.21
Dec2005 $1.06
Dec2004 $0.94
Dec2003 $0.84
Dec2002 $0.73

Recommended Reading:

Other ModernGraham posts about the company

Ecolab Inc Valuation – March 2018 $ECL
Ecolab Inc Valuation – June 2016 $ECL
40 Companies in the Spotlight This Week – 2/21/15
ECOLAB Inc. Annual Valuation – 2015 $ECL
14 Companies in the Spotlight This Week – 2/22/14

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Disclaimer:

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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