Market noise is pulling down Ecolab’s stock this year. The shares of this global leader in cleaning, sanitation, and water management pulled back after the conflict in the Middle East began: The market is concerned that profits will be pinched by inflation in raw material costs stemming from higher energy prices. But we expect wide-moat Ecolab to fully pass along raw material cost inflation with little long-term impact to profits, and we view the market’s concerns as noise rather than signal. In fact, we think Ecolab is an undervalued stock to buy today, trading 15% below our USD 300 fair value estimate. Ecolab was one of Morningstar Chief US Market Strategist Dave Sekera’s top picks in a recent episode of The Morning Filter podcast.
With unmatched scale and a solid razor-and-blade business model, Ecolab’s competitive advantages are strong. The company’s cleaning and sanitation scale dwarfs the competition. Ecolab generates over double the revenue of its largest rival and controls roughly 9.5% of the USD 165 billion global market. Its industries are fragmented, with many markets made up of regional and local competitors. Ecolab is an attractive partner to global hospitality, foodservice, and manufacturing companies. We think it will continue to grow through market share gains and expansion into new end markets.
Key Morningstar Metrics for Ecolab
- : $300Fair Value Estimate
- : 4 StarsStar Rating
- : WideEconomic Moat Rating
- : MediumUncertainty Rating
Economic Moat Rating
We view switching costs as the key moat source that allows Ecolab to generate excess returns. Roughly 80% of Ecolab’s revenue comes from its installed base and consumables model, commonly known as the razor-and-blade model, which creates high switching costs. The other 20% comes from services, including pest control, regulatory and supply chain consulting, and manufacturing plant monitoring. Even during the covid-related downturn for many of Ecolab’s restaurant, lodging, and refinery customers, and the subsequent cost inflation that temporarily weighed on profits, the company’s returns on invested capital remained safely above its cost of capital. We think consistent excess returns are likely to continue for at least the next 20 years.
Read more about Ecolab’s moat rating.
Fair Value Estimate for Ecolab Stock
Our USD 300 fair value estimate includes the planned acquisition of CoolIT Systems, a data center cooling company, for USD 4.75 billion in cash. Thanks to pricing power from switching costs and the continued development of new products, we think Ecolab’s operating margin will expand to roughly 20% by 2027, from around 16.5% in 2024, in line with management’s long-term goal. Total revenue should grow at a mid-single-digit annual average rate over the next decade. We see faster growth in the water business from global high-tech end markets, which include semiconductors and data centers. Our cost of capital for Ecolab is roughly 7.5%.
Read more about Ecolab’s fair value estimate.
Risk and Uncertainty
Ecolab’s main customers in the institutional segment are restaurants and hotels, which are affected by changes in dining and travel activities. Also, Ecolab’s sales proposition often includes the assurance that customers will meet regulatory standards and not experience a disastrous outcome, such as a product recall or bacteria outbreak. If a customer were to experience this, Ecolab’s reputation could suffer and it could lose multiple customers. Should freshwater costs stop rising, demand growth for water management systems from Ecolab’s industrial customers would likely slow. Ecolab’s largest environmental, social, and governance risk is related to its cleaning products, which contain chemicals that are subject to heavy regulation and may be banned in the future.
Read more about Ecolab’s risk and uncertainty.
Ecolab Bulls Say
- A focus on delivering savings on labor, energy, and water for customers makes Ecolab’s products and services attractive even during economic slowdowns.
- Ecolab’s water business has growing exposure to AI through its semiconductor manufacturing and data center customers. This should drive strong long-term growth for the company.
- Rising freshwater costs will drive demand for industrial water management systems. Ecolab’s systems will be able to save its customers water and energy costs, which will increase water business profits.
Ecolab Bears Say
- Sales growth could become more difficult, as Ecolab already sells to many of the largest restaurant and hotel chains.
- As with many chemical companies, Ecolab’s fluctuating raw material costs could weigh on profitability.
- Growth in demand for water management systems will attract competition, which could result in slower growth for Ecolab.
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This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of May 26, 2026, close unless otherwise noted.
