Ecolab Inc (ECL)

Conclusion

Ecolab Inc (ECL.US) provides water treatment, hygiene and infection prevention products and services to food, healthcare, hospitality, industrial and life sciences customers in the United States and abroad. At a price of 306.74 USD on 2026-11-09, the market capitalisation is 86.03 billion USD.

The verdict is overvalued. The price-to-earnings ratio of 41.3 sits above its ten-year median of 35.9, a premium of 15.0%, and enterprise value to EBITDA of 27.3 sits above its median of 21.6, a premium of 26.2%. The DCF gives 112.95 USD per share and the fair value from historical multiples is 250.80 USD. The fair value band runs from 145.50 to 218.25 USD with a midpoint of 181.87 USD, a margin of safety of -40.7% at the current price. The reverse DCF implies growth of 18.7% a year, against revenue growth of 6.4% and free cash flow per share growth of 6.9% over five years.

Three strengths hold the case up: an Altman Z-score of 4.02, free cash flow conversion of 86.2% over the last twelve months, and an operating margin of 17.1% against a ten-year median of 14.9%. The weakest numbers are net debt to EBITDA of 3.59x, price multiples well above their medians, and ROIC of 10.3% against a WACC of 8.45%. If margins or cash conversion slip, the price becomes harder to justify.

Financial health

Financial health is green: the Altman Z-score of 4.02 and interest coverage of 8.3x are assessed good, while net debt to EBITDA of 3.59x and a current ratio of 1.11 are neutral. The quick ratio is 0.71 and debt to equity is 1.32, both as of 2026-09-30. The Altman model was designed for manufacturers, and Ecolab runs substantial service businesses, so its SAFE zone should be read with that in mind. Insolvency risk: low, about 0.6% by the estimate of the Ohlson model over one to two years. Net debt to EBITDA is the figure to watch, because it leaves less room if earnings fall.

Earnings quality

Earnings quality is green. Free cash flow conversion is 86.2% over twelve months and 100.9% over five years, and the accrual ratio is -0.037. The share count changed at a compound rate of -0.13% over five years, which points to buybacks. Stock-based compensation is 0.82% of revenue, and free cash flow after it is 1.65 billion USD. The Piotroski score is 6 out of 9. The Beneish M-score is not available. Over the last eight quarters the company beat estimates three times and missed once, with an average surprise of 12.4%. Estimate revisions are slightly negative: current-year estimates moved -0.11% over 90 days and next-year estimates -0.29%, while expected growth next year is 15.3%.

Profitability

Profitability is green, with gross, operating and net margins all assessed good. Gross margin is 43.9% against a ten-year median of 41.8%, operating margin 17.1% against 14.9%, and net margin 12.0% against 9.6%. Margin stability is 12.2%. ROIC of 10.3% against a WACC of 8.45% gives a ROIC minus WACC of 1.8%, assessed neutral, and the five-year median ROIC is 10.9%. Return on equity of 20.0% looks stronger than the underlying business. The DuPont split shows a net margin of 12.9%, an asset turnover of 0.65 and an equity multiplier of 2.53, so leverage accounts for a large part of that return.

Growth

Growth is green, supported by earnings growth and near-term estimates, but limited by long-run revenue. Revenue compounds at 4.3% over three years, 6.4% over five and 1.7% over ten. EPS compounded at 24.1% over three years and 8.2% over ten. Free cash flow per share compounded at 21.2% over three years, 6.9% over five and 5.4% over ten. Revenue grew in 7 of the last 10 years. The three-year EPS figure is far above the ten-year one, so the recent pace should not be extrapolated without question.

Valuation

Valuation is red: the verdict is overvalued and the margin of safety of -40.7% is assessed bad. Against their ten-year medians, the price-to-earnings ratio is 41.3 versus 35.9 (premium 15.0%), the price-to-free-cash-flow ratio 47.9 versus 37.8 (26.7%), the price-to-sales ratio 4.95 versus 4.13 (20.0%) and the price-to-book ratio 8.25 versus 6.75 (22.3%). The DCF gives 112.95 USD per share, using a discount rate of 9.16% and long-term growth of 2.5%, with the terminal value making up 55.6% of the value. The fair value from historical multiples is 250.80 USD. The fair value band of 145.50 to 218.25 USD, midpoint 181.87 USD, is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, and is not a price target. The reverse DCF implies 18.7% growth, against 6.4% revenue growth and 6.9% free cash flow per share growth over five years. The dividend yield is 0.95% and the payout is 45.6% of free cash flow.

Risks

The main risk is that the price assumes growth well above what the company has delivered over five years. If growth stays near its historical pace, the gap to the current price is unlikely to close through earnings alone. Net debt to EBITDA of 3.59x would restrict flexibility if earnings weakened, and a current ratio of 1.11 with a quick ratio of 0.71 leaves a thin liquid cushion. ROIC of 10.3% is only modestly above WACC of 8.45%, so a decline in returns would quickly remove the excess. The Beneish M-score is not available, so the earnings manipulation check is incomplete. This analysis also lacks a debt maturity schedule and revenue by segment, so refinancing risk and the divisional mix cannot be judged. The insolvency estimate is a model output, not a forecast.