Oppenheimer Comments On Ecolab Ahead Of Earnings

Due to the proximity of its 4Q10 earnings report on 2/17, Ecolab ECL shied away from divulging near-term expectations, and instead focused on long-term fundamentals. The company remains confident that its restructuring in Europe will yield significant annual margin improvement, while public data on end markets continue to show gradual acceleration. ECL's volume growth has steadily climbed, despite lackluster unemployment crimping restaurant demand. For tunately, full service dining will be less of a drag in 2011 after star ting last year being down 4%, although foot traffic is still modestly negative. The institutional cleaning market remains highly fragmented and competitive, but ECL's high-touch sales model will remain a for midable economic moat. After a lengthy restructuring and SAP implementation, European margins are still targeted to reach the low- to mid-teens from a current low 4%, with at least 100bps improvement per year. Raw materials will pose a headwind for 1H11, but this challenge is old hat. It expects healthcare, which was slowed by lingering H1N1 inventory, to return to growth, while pest elimination and kitchen equipment repair, which are later-cycle businesses should pick up. Oppenheimer continues to like ECL trading at 20.1x '11E EPS, a 20% discount to its ten-year average. It maintains a dominant institutional cleaning franchise with pricing power, high barriers to entry owing to its salesforce of 14,290, with under-penetrated markets and should grow EPS by 12% in '11E and by 15% in '12E. Oppenheimer has a $56 PT and Outperform rating on ECL ECL closed Tuesday at $49.98