We are initiating coverage on Ecolab Inc. (ECL) with a Neutral recommendation and a target price of $47.
Ecolab, founded in 1923 and headquartered in St. Paul, Minnesota, is a leading provider of cleaning, sanitizing, food safety and infection prevention products and services. The company serves the foodservice, food and beverage processing, healthcare, and hospitality markets both in the US as well as internationally.
Ecolab conducts its business through three segments: United States cleaning and sanitizing segment, the international segment and the United States other services segment. The three segments contributed approximately 45%, 47% and 8% respectively to the consolidated net sales of $5.9 billion in fiscal 2009.
The United States cleaning and sanitizing segment offers janitorial products, infection prevention products, soaps, polishes, wheel/tire treatments, air fresheners, chemical laundry products, water care programs among others. The services offered by the international cleaning and sanitizing division are similar to its domestic operations. 

The US other services segment comprises two business units: the pest elimination division that provides services aimed at detecting, eliminating and preventing pests and the GCS services division that serves the commercial food service industry by providing equipment repair and maintenance services.
Ecolab has a significant presence in the international market. The company operates in multiple countries outside the US. The largest international operations of the company are in Europe, Asia Pacific, Latin America and Canada. The significant international presence has boosted its growth and we believe will continue doing the same in the coming years.
The company believes in growth-by-acquisition. Even though the company has completed multiple acquisitions over the past few years, which have expanded its product portfolio, the strategy has inherent risks.
We remain concerned about the intense competition facing Ecolab. Competitors will always look to grab market share by offering lower prices, new and better services. Furthermore, the fluctuations in the cost of raw materials have the potential to affect Ecolab adversely.
Consequently, we do not anticipate a significant upside in the near future and expect the stock to perform in line with the broader market.
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