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Longbow Still Bullish On Ecolab...But Why?

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In a report issued Monday, Longbow Research analyst Dmitry Silversteyn reiterated a Buy rating and $130.00 price target on shares of Ecolab Inc. (NYSE: ECL), as hyped energy woes provide an attractive entry point.

Why Buy?

The firm’s rating is supported by the idea that the company’s performance in the second half of the year can surprise to the upside, even in spite of a complicated start to the year and investor worries about the impact of low oil prices on Global Energy.

The performance could be driven, among other things, by potential mergers and acquisitions, as well as stabilizing FX rates, which were pinned as the main culprits of the soft results in the first half of the year.

As FX stabilizes and organic performance ameliorates, the analysts think Ecolab’s sales and earnings growth should return to previous levels, “driving positive earning revisions and potentially higher multiples.”

Key Takeaways

Longbow drew three main conclusions in relation to this company:

1) “FX masks portfolio resilience in 2015. Despite the "dreaded" downturn in the E&P portion of the company's Global Energy division,” the business should continue to drive improving margins and mid single digit organic growth this year, the analysts say. This would allow Ecolab to retrieve mid-teens EPS growth; “lower 7-10% EPS improvement guidance is driven more by FX than Energy's deceleration.”

2) There’s upside to consensus expectations for the second half of 2015.

3) Higher multiples are justified by the long-term performance outlook. “Organic growth of 6-8% combined with a 2-3% contribution from acquisitions and 50-75 bps margin improvement should allow ECL's multiples to re-test previous highs, implying a materially higher stock price over the next 12-24 months,” the experts said.

Latest Ratings for ECL

DateFirmActionFromTo
Feb 2017Longbow ResearchDowngradesBuyNeutral
Aug 2016MacquarieInitiates Coverage onOutperform
Aug 2016Deutsche BankMaintainsHold

View More Analyst Ratings for ECL
View the Latest Analyst Ratings

Posted-In: Dmitry Silversteyn LongbowAnalyst Color Long Ideas Price Target Reiteration Analyst Ratings Trading Ideas

 

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