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Investing.com -- Baird upgraded Ecolab (NYSE:ECL) to Outperform from Neutral on stronger-than-expected margin gains, achievable long-term earnings targets, and the company’s most attractive valuation in years.
The brokerage said Ecolab’s price-led revenue growth and operational improvements are driving its highest return on invested capital (ROIC) since 2016, calculated at 11.5% over the trailing 12 months.
That momentum, along with reduced acquisition activity and ongoing restructuring efforts under the “One Ecolab” program, is seen supporting future margin expansion.
Baird noted that second-quarter results were largely in line with expectations.
Organic revenue grew 3% from a year earlier, with pricing contributing 2% and volume adding 1%. Operating margins expanded by 170 basis points, while gross margins benefited from cost controls and sourcing improvements, even in a mixed macro environment.
The firm noted that the pricing gains in Q2 were modest, particularly in the U.S., where a surcharge was implemented mid-quarter.
That contribution is expected to show more impact in the second half of 2025, with Q3 price growth seen near 3%.
Baird expressed increased confidence in Ecolab’s ability to reach its 2027 adjusted operating income margin target of 20%, helped by digital initiatives and a projected decline in intangible amortization that could lift margins by an additional 70 basis points.
Ecolab’s shares, which have underperformed since March, now trade at 33 times forward earnings—below their five-year average of 34 times and at the narrowest premium to the broader market since 2018.
Baird noted the stock remains expensive, with a 3% free cash flow yield, but called the current valuation more reasonable.
The firm added that a potential pickup in the Life Sciences business and increased capital spending could offer further upside.