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Ecolab Acquires Anios and Sees Its Target Price Cut

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Jun. 30 2016, Published 11:16 a.m. ET

Ecolab’s price movement

Ecolab (ECL) has a market cap of $34.3 billion. Its stock rose by 1.3% to close at $116.79 per share on June 29, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -2.2%, -0.09%, and 2.8%, respectively, on the same day. ECL is trading 1.7% below its 20-day moving average, 0.29% below its 50-day moving average, and 3.6% above its 200-day moving average.

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Related ETF and peers

The PowerShares Water Resources Portfolio (PHO) invests 7.5% of its holdings in Ecolab. The ETF tracks a modified liquidity-weighted index of US-listed companies that create products to conserve and purify water. The YTD price movement of PHO was 6.9% on June 29.

The market caps of Ecolab’s competitors are as follows:

  • 3M (MMM): $104.0 billion
  • Danaher Corporation (DHR): $69.0 billion
  • ServiceMaster Global Holdings (SERV): $5.3 billion

Ecolab offers to acquire Anios

In a press release on June 29, 2016, Ecolab stated, “Ecolab has made a binding offer to acquire Laboratoires Anios from co-owners Bertrand and Thierry Letartre and private investment company Ardian.” Anios manufactures and markets hygiene and disinfection products for the healthcare, food service, and food and beverage processing industries. This acquisition is expected to close in late 2016.

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Ecolab sees its target price cut

Nomura has dropped Ecolab’s target price to $94 from $96 per share and maintained its “reduce” rating.

TheStreet Ratings has rated Ecolab as a “buy” with a score of “A-.”

Ecolab’s performance in fiscal 1Q16

Ecolab reported fiscal 1Q16 net sales of $3.1 billion, a fall of 6.1% from net sales of $3.3 billion in fiscal 1Q15. Sales from the Global Industrial and Global Institutional segments rose by 4.0% and 7.5%, respectively, and sales from Global Energy fell by 14.7% between fiscal 1Q15 and fiscal 1Q16. In that same timeframe, the company’s cost of sales as a percentage of net sales and operating income fell by 1.9% and 4.2%, respectively.

Its net income fell to $230.8 million in fiscal 1Q16, compared with $233.4 million in fiscal 1Q15. It reported EPS (earnings per share) of $0.77 in fiscal 1Q15 and 1Q16.

Ecolab’s cash and cash equivalents rose by 12.9%, and its inventories fell by 7.8% between fiscal 1Q15 and fiscal 1Q16. Its current and debt-to-equity ratios fell to 1.0x and 1.76x, respectively, in fiscal 1Q16, compared with 1.2x and 1.77x, respectively, in fiscal 1Q15.

Projections

The company has made the following projections for fiscal 2016:

  • adjusted gross margin of 47%–48%, which excludes special gains and charges
  • net interest expenses of ~$270 million
  • adjusted tax rate of ~26%
  • noncontrolling interest of $0.06–$0.10
  • adjusted EPS of $4.35–$4.55, excluding special gains and charges

The company has made the following projections for fiscal 2016:

  • adjusted gross margin of ~48%, which excludes special gains and charges
  • net interest expenses of ~$67 million
  • adjusted tax rate of ~26%
  • noncontrolling interest of $0.01–$0.02
  • adjusted EPS of $1.03–$1.11, excluding special gains and charges
  • share repurchase of ~$700 million in 1H16

In the final part of this series, we’ll discuss General Mills’ performance in fiscal 4Q16.

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