Ecolab ( ECL) shares are up 15% over the past month, closing Tuesday at $38.93. What intrigues me about the company is that it appears to have a unique opportunity to gain market share in the near term.Ecolab provides cleaning and maintenance services for the hospitality, institutional and industrial customers, and with the stock off 4% from its recent highs, I'm here to answer investors' questions: Should I do it? Should I purchase Ecolab at current levels? Ecolab's largest competitor, privately held Johnson Diversey, said March 7 that it is leaving the business of full-service cleaning services for domestic hospitality and health care facilities. This potential new business could account for about 20% of Ecolab's annual sales and 30% of operating income. According to a research note by Merrill Lynch analyst Michel Morin, Ecolab has the lion's share of the fragmented U.S. cleaning services market, with 11%. Johnson controlled about 8% of the $38 billion industry, with the rest split between significantly smaller operators. Morin has a buy rating on Ecolab. Morgan Stanley analyst Robert Ottenstein also upgraded his rating on the company to overweight on March 9. According to Bloomberg, there are seven buy ratings, four holds and one sell among the dozen analysts with active coverage on Ecolab. Ecolab, by effectively becoming the only major player in this space -- Johnson will continue to distribute its cleaning products, but no longer offer services as well -- has the potential to realize significant pricing power. It makes no difference what business a company operates in; this is an attractive operating environment from an investor standpoint. When a company like Ecolab can substantially raise its prices, it can generate organic growth. When this happens, analysts often can't keep their estimates in line with the company's earnings power. To take this a step further, upside earnings surprises generally contribute to consistently rising share prices.
It's also worth noting that the company pays a 10-cent quarterly dividend. Ecolab has raised its payout 13 consecutive years, and now yields 1%. The payment is at the low end of the industry range, but can be comfortably covered 3.5 times with expected 2006 earnings of $1.41 a share. This represents 15% profit growth from the previous year, and would be Ecolab's eighth year of double-digit annual improvement in the past 10. I'll be the first to admit that the stock is no bargain, trading at 27.5 times expected 2006 earnings. Even so, this represents just a 9% increase to the company's average historical valuation, and the argument could be made that Ecolab's competitive position is the strongest it has been in several years. All in all, I believe that readers should do it -- Ecolab is attractive to purchase at or below Tuesday's closing price of $38.93.