Analyst Note| Seth Goldstein, CFA |
Ecolab's second-quarter results were in line with our expectation for the cadence of the year as operating income more than doubled versus the prior-year quarter and was up 50% versus the first quarter. The bulk of the growth was due to a recovery in the institutional business, which primarily sells products and services to the hospitality industry. We had expected Ecolab would see sequentially rising sales and profits, particularly in the institutional segment, as COVID-19-related restrictions ease and consumers return to dining at restaurants and staying in hotels. With our outlook largely unchanged, we've raised our fair value estimate to $202 per share from $200 as the time value of money effects are partially offset by our outlook for a higher U.S. corporate tax rate. Our wide moat rating is unchanged. At current prices, we view Ecolab shares as fairly valued on a risk-adjusted basis, with the stock trading a little less than 10% above our fair value estimate but still in 3-star territory.