Stocks like Ecolab and Cintas could be long-term beneficiaries of the post-pandemic cleaning boom

Published Sun, Dec 13 20208:26 AM EST

(This story is for CNBC Pro subscribers only.) Of the many radical changes that the Covid-19 pandemic has brought to the world, cleaning and sanitation is one that Barclays feels will be permeant and nonnegotiable. The Wall Street firm sees the institutional cleaning industry, which is a $30 billion market, experiencing massive growth due to the pandemic, with a handful of stocks benefitting from the structural change. "Pre-pandemic, sanitization/cleaning was mostly taken for granted, but in a post-pandemic world we believe consumers and employees will demand that places not only 'be clean' but also 'show clean'," Barclays analyst Lauren Lieberman told clients. "We foresee a greatly expanding addressable market as well as share consolidation, with larger incumbents and well-known consumer brands both playing a role," Lieberman added. The coronavirus pandemic has altered many consumer behaviors in 2020. Restaurant closures have pushed consumers to food delivery services, work-from-home policies have spurred growth in technology companies that enable remote working, retailers have shifted their platforms online and at-home entertainment has replaced travel and leisure experiences. Barclays considers the idea of cleanliness to be another major shift in consumer behavior and expectations. The firm believes that these raised expectations around hygiene will be long-lasting and transformative for the industry, especially in the industrial cleaning space. This market includes more commercial clients for cleaning products, including offices, factories, restaurants, hotels and other "away-from-home" spaces. At a base level, Barclays expects cleaning companies same-store sales to increase between 10% and 20% from pre-pandemic levels. The firm broke down which stocks are poised to benefit the most from the industry changes. Stocks to watch Ecolab is the clear market leader, but with only 12% to 16% market share; however, Barclays said the firm is positioned to further consolidate its market share. The company's stock is only up 14% this year. "Ecolab is by far the biggest player in this space ($4.4B FY19 revenues in Institutional), and its combination of scale, unmatched service capabilities and innovation, bolstered by digital capabilities, positions it to further consolidate the market post-COVID-19," said Lieberman. "Post-COVID, Ecolab re-engineered its growth plan to disproportionately lean into cross sell opportunities – targeting a 20% increase in penetration of existing customers," she added. Similarly, Cintas has already seen many new growth prospects driven by Covid-19 concerns. The firm's hygiene and facility services business has been a multi-year growth driver, the firm noted. "Moving forward, it's my opinion that Covid-19 will do to workplace and public space cleanliness what 9/11 did to security," Cintas CEO Scott Farmer said. "While Cintas is best known as a Uniform rental company, the company has done a nice job over the last decade diversifying into natural adjacencies – including hygiene services," said Lieberman. The hygiene business now makes up 10% of Cintas' revenues. Its hygiene services typically involve weekly or bi-weekly visits to customer locations with programs that include providing paper towels, toilet paper, air fresheners, said Barclays. Consumer-facing beneficiaries In addition to Ecolab and Cintas, several consumer-facing brands that participate in the institutional cleaning space are expected to benefit from the sector's growth. Clorox 's stock is up more than 30% in 2020 as consumers purchased bleach and disinfecting wipes in troves during the height of the pandemic. Barclays said some of the stock's outperformance has been by expectations for new growth opportunities in its Professional Products Division, which surrounds institutional cleaning. "In our view, PPD is one of the more compelling growth opportunities available to Clorox in the years to come," said Lieberman. Barclays also said Procter & Gamble is well-positioned to gain share in the institutional cleaning market. "Although P & G Professional has historically not been in the spotlight, the business has been growth accretive for the company," said Lieberman. "Post-pandemic P & G Professional should be nicely placed to continue gaining share." Barclays also said that Aramark could have a growth opportunity in expanding its facilities business. The food delivery company is hard-hit by the pandemic with offices, sports arenas and schools closed; however, expanding the scope of their facility business could help them tap into the cleaning market. "One area of opportunity, in our view, is facilities management, where Aramark's enterprise approach could be well received with enhanced requirements for cleaning," said Lieberman. Lastly, the firm said Reckitt Benckiser , which has historically only participated in the retail hygiene market, has entered into the professional cleaning market in recent months and plans further expansion there. Reckitt Benckiser, which makes Dettol and Lysol products, "has approached the professional hygiene space in such a way that a few large contracts can likely result in significant volume," said Lieberman. — with reporting from CNBC's Michael Bloom.

Family Dollar Store, anti-bacterial wipes and cleaning products.

Jeff Greenberg | Getty Images

(This story is for CNBC Pro subscribers only.)

Of the many radical changes that the Covid-19 pandemic has brought to the world, cleaning and sanitation is one that Barclays feels will be permeant and nonnegotiable.

The Wall Street firm sees the institutional cleaning industry, which is a $30 billion market, experiencing massive growth due to the pandemic, with a handful of stocks benefitting from the structural change.

"Pre-pandemic, sanitization/cleaning was mostly taken for granted, but in a post-pandemic world we believe consumers and employees will demand that places not only 'be clean' but also 'show clean'," Barclays analyst Lauren Lieberman told clients.

"We foresee a greatly expanding addressable market as well as share consolidation, with larger incumbents and well-known consumer brands both playing a role," Lieberman added.