Morningstar | Ecolab Reports Solid End To 2018; Raising Our FVE to $146 on Higher Near-Term Profits. See Updated Analyst Note from 05 Feb 2019
Ecolab announced preliminary 2018 fourth-quarter results that were slightly above our expectations. Further, the company guided to 2019 adjusted EPS between $5.80 and $6.00, which is above our previous forecast of $5.68. Having updated our model to account for better near-term results, we're raising our Ecolab fair value estimate to $146 per share from $141. Our wide-moat rating remains intact.While management did not provide much detail, they mentioned an 8% year on year growth in the industrial water business during the fourth quarter. This is consistent with our long-term expectation that Ecolab will benefit from rising fresh water costs that create demand for Ecolab's products which reduce water use. We expect further details when Ecolab releases its detailed results on Feb. 19.
Ecolab also announced that the company plans to spin-off its upstream energy business in 2020 in to a separate publicly traded company. The current energy segment consists of oil field chemicals, or OFC, wellchem drilling, and the downstream business, which sells products and services to refiners and petrochemicals plants. The upstream energy company that will be spun off will be made up of the OFC and wellchem businesses. These businesses generated around $2.4 billion in revenue in 2018, which accounts for around two thirds of total energy segment revenue.
We are in favor of this move as the upstream energy business model was different from the rest of Ecolab, similar to the equipment care business that Ecolab sold in 2017. We are in favor of management divesting businesses that are run in a different manner as these business often carry lower margins and have different risk profiles, such as profits in the upstream energy business being tied to oil price movements.
Ecolab is a provider of water, hygiene and energy technologies and services. The company's segments include: Global Industrial, which provides water treatment and process applications, and cleaning and sanitizing solutions in the manufacturing, food and beverage processing, chemical, power generation, pharmaceutical and commercial laundry industries; Global Institutional, which provides cleaning and sanitizing products to the foodservice, hospitality, lodging, healthcare, government, education and retail industries; and Global Energy, which serves the process chemicals and water treatment needs of the global petroleum and petrochemical industries in both upstream and downstream applications.
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