Ecolab (ECL) Could See Further Gains on Hydro Fracking Boom - Barron's
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Ecolab (NYSE: ECL) is lower on the session amid a positive Barron's article over the weekend.
One of the main reasons for bullishness is the new ratio of using water to extract oil; previously, it took just one barrel of water to procure 10 barrels of oil, but generating a similar amount of shale-gas energy requires five times that amount now during hydrolic fracturing.
About 140 billion gallons of water are used at some 35,000 fracked annually, noted Barron's. Though most moves underground, there's a portion of the water that is returned, though its rendered toxic by the fracking process. Ecolab, which owns Nalco and Champion, is a leader in the treatment of the fracking water.
Nalco's chemicals were used to help clean up the BP plc (NYSE: BP) Gulf of Mexico oil spill in 2010. Nalco has chemicals to separate oil and water, keep water free of bacteria without corrosion, and several other assets.
Champion, which Ecolab acquired this month, also makes fracking water treatment chemicals.
Energy revenue rose 21 percent, an impressive number, and while some analysts see slowing from that level, most think growth in the 13 percent to 14 percent range is sustainable.
Earnings for Ecolab are expected to be $3.35 for FY12, moving to $4.13 next year. Barron's notes that adding in a bout 25 cents per share for the Champion acquisition puts Ecolab at 19 times earnings, a 50 percent premium to the S&P 500.
Ecolab CEO Doug Baker has defended the valuation, saying that the company grows much faster than the S&P. While the S&P rose 6 percent per share in 2012 and is expected to see growth of 8 percent on average in 2013, Ecolab earnings rose 23 percent last year, with 42 percent of growth expected this year. Baker also sees Ecolab's growth continuing given its robust portfolio, synergies with Nalco and Champion, as well as an improving economy.
Analysts overall expect the company to produce free cash flow (FCF) of $4.88 per share in 201 and $5.93 in 2014. Putting a 17 times multiple on FY14 FCF puts Ecolab at $101.
The company also has a current dividend yield at about 1.1 percent.
Shares are off about 0.3 percent.
One of the main reasons for bullishness is the new ratio of using water to extract oil; previously, it took just one barrel of water to procure 10 barrels of oil, but generating a similar amount of shale-gas energy requires five times that amount now during hydrolic fracturing.
About 140 billion gallons of water are used at some 35,000 fracked annually, noted Barron's. Though most moves underground, there's a portion of the water that is returned, though its rendered toxic by the fracking process. Ecolab, which owns Nalco and Champion, is a leader in the treatment of the fracking water.
Nalco's chemicals were used to help clean up the BP plc (NYSE: BP) Gulf of Mexico oil spill in 2010. Nalco has chemicals to separate oil and water, keep water free of bacteria without corrosion, and several other assets.
Champion, which Ecolab acquired this month, also makes fracking water treatment chemicals.
Energy revenue rose 21 percent, an impressive number, and while some analysts see slowing from that level, most think growth in the 13 percent to 14 percent range is sustainable.
Earnings for Ecolab are expected to be $3.35 for FY12, moving to $4.13 next year. Barron's notes that adding in a bout 25 cents per share for the Champion acquisition puts Ecolab at 19 times earnings, a 50 percent premium to the S&P 500.
Ecolab CEO Doug Baker has defended the valuation, saying that the company grows much faster than the S&P. While the S&P rose 6 percent per share in 2012 and is expected to see growth of 8 percent on average in 2013, Ecolab earnings rose 23 percent last year, with 42 percent of growth expected this year. Baker also sees Ecolab's growth continuing given its robust portfolio, synergies with Nalco and Champion, as well as an improving economy.
Analysts overall expect the company to produce free cash flow (FCF) of $4.88 per share in 201 and $5.93 in 2014. Putting a 17 times multiple on FY14 FCF puts Ecolab at $101.
The company also has a current dividend yield at about 1.1 percent.
Shares are off about 0.3 percent.
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