Skip to Content
Stock Strategist

The Best Way to Play Rising Fresh Water Costs

As fresh water demand exceeds supply, wide-moat Ecolab stands to benefit.


Fresh water consumption continues to exceed readily available supply. Our outlook for rising fresh water costs portends smaller profits for a wide variety of manufacturing companies that consume high volumes of water. However, these companies can mitigate margin contraction with the use of water management systems.  Ecolab (ECL) is a market leader in water management and is well positioned to take advantage of the growing need for water treatment. Our research indicates that the value proposition of Ecolab’s water treatment solutions will improve significantly in the coming years.

Ecolab’s water business might be considered noncore by some, as the company is better known for its cleaning and sanitation solutions. However, we expect the water treatment business to generate 40% of the company’s incremental profits over the next decade. We think the magnitude of this contribution is somewhat underappreciated by the market, even as market-implied expectations for the legacy operations remain lofty. Trading at 17.7 times forward EBITDA, the company’s multiple seems befitting of the wide moat rating we assign. Ecolab’s economic moat is built on customer switching costs underpinned by a razor-and-blade business model.

Seth Goldstein does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.