Ecolab Inc.ECLNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $213.52 per share(market-calibrated)

-28.7%

Upside to Fair Value

Current

$299.37

Pure Model

$205.20

Fair Value

$213.52

Bull Case

$250.11

Bear Case

$164.86

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

4.87%

Calibrated Growth

2.91%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $205.20.

What's Driving This Ratingfor ECL

↓

CapEx normalizing toward maintenance

Historical CapEx is 5.19% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$266M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 24.87% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 7.48% revenue growth, fading to 2.25% by Year 10. Revenue reaches $22.4B (vs $16.1B today).

🎯

Market pricing in higher long-term growth

To justify $299.37, the market implies 4.87% perpetual growth — 262bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 71.56% indicates efficient cash generation. FCF reaches $4.8B by Year 10 (21.64% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.99

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.96%

Cost of Debt

Pre-tax Cost of Debt3.00%

Tax Rate17.84%

After-tax Cost of Debt2.46%

Equity Weight (E/V)89.99%

Debt Weight (D/V)10.01%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (89.99% × 8.96%) + (10.01% × 2.46%)

= 8.31%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$17.3B	$18.9B	$20.0B	$20.9B	$22.4B
EBIT	$4.3B	$4.7B	$5.0B	$5.2B	$5.6B
Tax	$767M	$840M	$888M	$928M	$992M
NOPAT	$3.5B	$3.9B	$4.1B	$4.3B	$4.6B
+ Depreciation	$927M	$1.0B	$1.1B	$1.1B	$1.2B
- Capex	$897M	$932M	$932M	$919M	$894M
- Δ NWC	$89M	$61M	$33M	$34M	$36M
Free Cash Flow	$3.5B	$3.9B	$4.2B	$4.4B	$4.8B
Discount Factor	0.923	0.787	0.671	0.572	0.450
Present Value	$3.2B	$3.1B	$2.8B	$2.5B	$2.2B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.8B

Terminal Growth Rate2.25%

WACC8.31%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$81.6B

PV of Terminal Value$36.7B

Exit Multiple Method

Year 10 EBITDA$6.8B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$94.6B

PV of Terminal Value$42.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$27.3B

PV of Terminal Value$36.7B

Enterprise Value$64.0B

(-) Net Debt$8.8B

Equity Value$55.2B

Shares Outstanding283M

Price per Share$194.82

Exit Multiple Method

PV of Projected FCFs$27.3B

PV of Terminal Value$42.6B

Enterprise Value$69.9B

(-) Net Debt$8.8B

Equity Value$61.1B

Shares Outstanding283M

Price per Share$215.59

Pure Model Fair Value

$205.20

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
6.31%	$258.19	$268.84	$282.11	$299.10	$321.63
7.31%	$222.84	$229.55	$237.57	$247.36	$259.55
8.31%	$195.49	$199.98	$205.20	$211.37	$218.76
9.31%	$173.42	$176.56	$180.15	$184.28	$189.09
10.31%	$155.08	$157.36	$159.91	$162.80	$166.11

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$164.86

-44.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.24

Base Case

$205.20

-31.5% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.99

Bull Case

$250.11

-16.5% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.84

Key Assumptions & Drivers• Basic Materials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth7.48%

Year 3 Revenue Growth4.55%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin24.87%

Tax Rate17.84%

Historical Capex / Rev5.19%

Terminal Capex / Rev4.00%

NWC / Revenue7.41%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 14x EV/EBITDA (Basic Materials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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