Goldman Downgrades Ecolab To Sell

Goldman Sachs’ Robert Koort downgraded the rating for Ecolab Inc. ECL from Neutral to Sell, while reducing the price target from $104 to $93, citing the company’s moderating earnings growth.

Cyclical Headwinds In Energy Business Warrant Lower Valuation

Analyst Robert Koort noted that robust growth at Ecolab’s core institutional services business had been offset by cyclical headwinds associated with the company’s relatively new energy business. The company’s y/y earnings growth has moderated from 18 percent in 2014 to 4 percent in 2015.

“We are concerned that investors may recalibrate ECL’s valuation levels following similar patterns of earnings growth deceleration and multiple compression for other industrial and material growth stocks,” Koort wrote.

Estimate Changes

The analyst believes that the earnings volatility associated with Ecolab’s fast-growing energy services business merits a reduced valuation. The revenue estimates for FY16 and FY17 have been reduced from $14,074.4 million to $13,345.4 million and from 14,646.7 million to 14,784.6 million, respectively.

The EPS estimates for FY16 and FY17 have been reduced from $4.74 to $4.42 and from $5.23 to $4.93, respectively.