Noting that the company's "problematic" energy business will soon be spun off, Nomura Instinet analyst Dan Dolev upgraded Ecolab (ECL) to Buy as he believes its "recession resistant qualities should stand out," warranting a significant premium to peers. More bearish on the stock, his peer at UBS cut Ecolab’s rating to Neutral on the shares' "near record" valuation.
BUY ECOLAB: In a research note to investors, Nomura Instinet's Dolev upgraded Ecolab to Buy from Neutral and raised his price target on the shares to $210 from $170. With the "problematic" energy business soon to be spun off, Ecolab's "recession resistant qualities should stand out," warranting a significant premium to peers, Dolev argued. Following "years of lackluster organic growth,” the analyst now expects improved organic revenue growth, better pricing power, a more attractive geographic mix, and enhanced efficiency metrics. After "barely" achieving the low-end of the guidance range in 2018, his earnings per share bridge suggests that initial 2019 guidance may prove conservative. Dolev expects easing commodities, 50-60bps of efficiencies coupled with stronger operating leverage to drive earnings per share above the high-end of the company's guidance range.
MOVING TO THE SIDELINES: Meanwhile, UBS analyst John Roberts downgraded Ecolab to Neutral from Buy, while raising his price target on the shares to $186 from $180. The analyst cited the stock's "near record" valuation. Roberts acknowledged that Ecolab is the "most consistent EPS growth company" in his coverage, and assumes the current premium reflects a risk-off posture by investors. But while many of the highest quality stocks in his coverage have moved to the higher end of historical valuations, "none more than" Ecolab. Commenting on the company's plans to spin off its small upstream energy unit, the analyst said that the move is unlikely to be accretive given Ecolab's high valuation, but should further stabilize growth since upstream energy was the company's most volatile unit.
PRICE ACTION: In afternoon trading, shares of Ecolab are fractionally down to $182.33.
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