Ecolab's Return To Pre-Pandemic Levels - Double-Digit EPS Growth And Margin Recovery Expected By FY25: Analyst

RBC Capital Markets analyst Ashish Sabadra reiterated an Outperform rating on Ecolab Inc. ECL, with a price target of $213.

Ecolab plans to issue its second-quarter results on August 1, 2023.

Shabadra expects continued margin expansion (gross and AOI) driven by price/cost (pricing actions and lower input cost), which should accelerate throughout FY23 and FY24. 

For the second quarter, the analyst sees 9.4% y/y revenue growth in 2Q23, above the consensus of 7.3%, driven by HSD pricing gains and volume growth in all segments/subsegments (except for Paper and Healthcare).

For 2Q, the analyst sees lingering concerns about raw material inflation. Sabadra's operating margin estimate of 12.5% ($490 million) is slightly below the street's estimate of 12.8% ($493 million).

In addition, cost savings (~$175 million targets through FY24) bode well, the analyst notes. 

For the quarter to be reported, the analyst's EPS estimate of $1.20 (vs. cons of $1.21) aligns with the midpoint of ECL's guidance of $1.15-$1.25 but likely conservative given the price-raw dynamic.

The analyst expects an improvement in topline growth driven by HSD pricing increases and flat to LSD volume growth driven by new business wins. 

Going ahead, the analyst expects the mid-point of the 3Q23 EPS guidance to be modestly higher than the consensus. 

For FY23, the analyst expects topline growth of 10% y/y to ~$15.6 billion (vs. consensus of 7.6%) on new business wins and pricing.

In total, the analyst expects ECL to return to an "Ecolab-like" growth profile of double-digit EPS growth, and margins should return to pre-pandemic levels in FY25.

Price Action: ECL shares are trading higher by 0.43% to $188.34 on the last check Tuesday.