Company ProfileÂ (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:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||7.67%|
|MG Value based on 3% Growth||$66.32|
|MG Value based on 0% Growth||$38.88|
|Market Implied Growth Rate||12.11%|
|% 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|
|Number of Consecutive Years of Dividend Growth||20|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
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|
|Shares Outstanding (Diluted Average)||293,400,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$5.02|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$4.57|
Other ModernGraham posts about the company
|Ecolab Inc Valuation â€“ March 2018 $ECL|
|Ecolab Inc Valuation â€“ June 2016 $ECL|
|40 Companies in the Spotlight This Week â€“ 2/21/15|
|ECOLAB Inc. Annual Valuation â€“ 2015 $ECL|
|14 Companies in the Spotlight This Week â€“ 2/22/14|
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.