Investing.com -- Jefferies has upgraded Ecolab's (NYSE:ECL) rating to "buy" from "hold," reflecting improved expectations for the company's performance over the coming years.

The analysts at Jefferies argue that Ecolab’s business model is evolving in ways that make it more competitive and resilient, driven by a better product mix, digitalization efforts, and a shift towards value-added services.

As per the analysts Ecolab’s shift from traditional chemical services to solutions that leverage scale, sensor networks, and analytics positions it to capitalize on long-term efficiency gains.

These changes are expected to boost the company’s earnings potential, with Jefferies projecting an annual EPS growth rate of about 15% through 2026. This forecast surpasses the broader market consensus, which anticipates EPS growth closer to 11%.

Jefferies mentions that while Ecolab is not immune to macroeconomic challenges, such as fluctuations in demand from restaurants and hotels, the company’s ability to integrate Internet of Things solutions and adopt a more sustainable business model is likely to mitigate risks.

With the COVID-era disruptions easing, Ecolab is seen to be accelerating its transition towards digital platforms, which could drive significant margin expansion.

The analysts further argue that Ecolab's valuation is well-supported, especially in a market that anticipates falling interest rates and ongoing stimulus measures.

Jefferies suggests that Ecolab's competitive strengths—including its core chemistry expertise, operational culture, and economies of scale—position the company favorably relative to peers.

The analysts note that if the company can maintain consistent margin growth, it is likely to outperform, with an estimated 19% upside potential in share price over the next 12 months.

The note flags that there are still challenges, particularly around financial leverage and end-market volatility.

For example, capital allocation decisions, especially in areas like healthcare, will need to be carefully managed to avoid dragging on profitability.

Yet, Jefferies believes the company’s proactive approach to cost control and pricing strategies should offset most of these headwinds.

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