Ecolab Inc

NYSE: ECL Rating: Mediocre Buy Price: $61 Sell Price: $133 Current Price: $159  Ecolab has been a strong stock delivering compounding returns that have stalled since the beginning of the pandemic. Stuck between a set of products now in high demand and a client base that was quickly disappearing due to lockdowns, the business muddled through 2020 and 2021. The question I have is whether they can focus their efforts enough to capitalize on their products and services that can significantly impact their clients. The more I dug into this company, the more I was confused about what it did. At its core, it sells disinfecting products and other chemical products that help industries run cleaner and more efficiently. But, I could never actually get to the products they were selling. I would click through multiple options on their website and end up with a general description that didn’t tell me anything.That is a good representation of how the business has run over the past few years. They went on a spending spree buying 39 companies in 11 years. They ended up with a significant restructuring project started in 2018 called “Accelerate 2020” that delivers cost savings but needs to be followed up by the “Institutional Advancement Program” in 2020 to streamline the business even more. More to the point, they claim the expenses associated with these will drop off in 2023. Still, the company has had significant restructuring costs forever, which leads me to believe those costs will be replaced by new restructuring costs that will fix the company’s new mistakes.There is a quality company to be built around the quality products that Ecolab has amassed. I hope this new management team is the right one to bring that forward. But only time will tell if they make quality acquisitions that create value or continue down the path of a confusing mix of quality products that aren’t reaching their full potential.Company Description: Ecolab Inc. provides water, hygiene, and infection prevention solutions and services. The Company delivers various solutions, data-driven insights, and personalized service to various industries. Its segments include Global Industrial, Global Institutional & Specialty, and Global Healthcare & Life Sciences. Its Global Industrial segment provides water treatment and process applications and cleaning and sanitizing solutions, primarily to industrial customers within the manufacturing, food and beverage processing, transportation, chemical, primary metals and mining, power generation, global refining, petrochemical, pulp and paper industries. Its Global Institutional & Specialty segment provides specialized cleaning and sanitizing products to the food service, hospitality, lodging, government, education, and retail industries. Its Global Healthcare & Life Sciences segment provides specialized cleaning and sanitizing products to the healthcare, personal care, and pharmaceutical industries.Downside Rating: Concerning The company’s balance sheet is on the edge of creating risk for the company. At this point, it’s okay, but if the management team tries to rush acquisitions while still using cash for dividends and stock repurchases, it could change quickly. I’m also not sold on the moat the company has created, and as a result, it’s difficult to say that their products and services are sticky.If their margins can improve, showing their clients are willing to pay more for their services and products, or if they use the free cash flow of the business to pay down debt, this score can improve. But for now, I’m giving the company a downside rating of “Concerning.”Upside Rating: Mediocre The company has acquired several high-growth businesses in the past few years, which provides solid avenues for growth. However, it does appear that most of the company’s growth is coming through acquisition instead of internally developed projects.  Since they are using cash for dividends and share buybacks at an inflated share price and already have a decent debt balance, it is hard to see them acquiring businesses at the same rate. So, I’m giving them an upside rating of “Mediocre.” I don’t see an advantage for this company to grow any faster than its competitors. This will be upgraded if their internal development and organic growth paths improve or their balance sheet and asset allocation decisions improve.