Denver, Colorado – An analyst who initiated coverage of Ecolab (NYSE:ECL) in January 2024 with a ‘Sell’ rating due to high valuation, has continued to hold that position despite the company’s recent strong performance. Ecolab reported a 4% organic revenue growth and a 32% operating income growth in the second quarter of FY24, surpassing expectations and raising their full-year EPS guidance. The company’s ability to show growth in a challenging macroeconomic environment is commendable, but the analyst maintains that the stock remains overvalued.

One significant development for Ecolab was the divestiture of its Surgical Solutions business to Medline for $950 million in cash. This move allows Ecolab to focus more on its global healthcare business, specifically infection prevention and surgical solutions, aligning with the company’s strategic goals of transitioning into a more recurring business model. The sale was favorably received, with the divestiture price representing a decent valuation for a business primarily selling drapes.

Institutional and Pest Elimination businesses have been key drivers of growth for Ecolab. Institutional customers, such as restaurants and hotels, have been turning to Ecolab’s technology to reduce labor costs, showcasing the value of the company’s cleaning and sanitizing products and services. Additionally, Ecolab’s focus on a value-based pricing model has led to steady pricing growth, benefiting both the company and its customers.

Looking ahead, Ecolab is guiding for strong adjusted EPS growth for FY24, driven by margin improvement and growth in key business segments. The analyst forecasts steady growth for the company’s Global Industrial, Institutional, Healthcare, and Pest Elimination businesses, with a focus on pricing strategies and volume growth. The overall organic revenue growth is estimated to be 6%, with additional contributions from M&A activities.

Despite acknowledging the positive aspects of Ecolab’s performance, the analyst believes the stock price is still overvalued and reiterates a ‘Sell’ rating with a fair value of $210 per share. While recognizing the company’s strengths in certain business segments, concerns remain about potential competition in the pest control market and the need for further acquisitions to drive growth. The analyst’s cautious outlook underscores the complexities of valuing a company in a dynamic market environment.