Investing.com -- Morgan Stanley upgraded Ecolab Inc (NYSE:ECL). to Overweight from Equal-Weight in a note Tuesday, raising the price target to $280 from $263 a share.
The bank cited expectations of higher incremental margins and improved volume growth.
Analysts highlighted that Ecolab’s incremental operating margins could reach 45-50%, significantly above historical levels of 35-40%, driven by strategic initiatives under its "One Ecolab" (OE) program.
"We expect higher than historical incremental margins as volume trends improve," Morgan Stanley (NYSE:MS) wrote.
The firm believes Ecolab is well-positioned to achieve its 20% operating margin target by 2026, with its long-term EPS growth target of 12-15% potentially conservative.
Morgan Stanley forecasts 2025 EPS at $7.70, exceeding the consensus of $7.40, and projects $8.95 for 2026, compared to a consensus of $8.40.
"If we’re right about the shift in the volume growth and incremental margin algorithm, we will not be surprised if the stock’s multiple moves higher," analysts wrote.
Ecolab’s OE initiative, which integrates the company’s offerings and leverages digital tools, is seen as a key growth driver.
"We see OE as not so much different as it is digital, integrated, and elegant versus CCCG’s more siloed and analog nature," Morgan Stanley stated.
The bank explains that by focusing on comprehensive customer value and performance benchmarking, OE aims to stimulate volume growth and boost return on investment.
Despite recent underperformance—shares are down 6% since Ecolab’s Q3 report—Morgan Stanley sees an attractive entry point. "Ecolab's relative multiple versus the S&P 500 is nearing its historical low," they added.
The analysts acknowledge risks, including challenges in volume growth and potential SG&A spending pressures, but remain confident in the upside potential. Ecolab is Morgan Stanley's top pick in both the Specialty Chemicals and broader Chemicals sectors.