UK Markets close in 44 mins

ABB to Grow on Robust Demand, Buyouts & Cost Restructuring

Zacks Equity Research

Investors seem to be optimistic about ABB Ltd’s ABB recent earnings beat streak, as the company’s earnings have trumped estimates in each of the four trailing quarters. We expect this Zacks Rank #2 (Buy) company to continue to accelerate its momentum, driven by contribution from its accretive acquisitions, successful restructuring efforts and cost saving initiatives.

ABB’s shares have fared well in recent times as well, reflecting investor confidence. The company’s shares have appreciated 24.2% over the past year, outperforming the industry’s average gain of 16.6%. Read on to find out the key growth drivers for ABB right now.

Growth Drivers

Steady growth in revenues in the Electrification Products and Robotics & Motion segments has been a key contributor to ABB’s momentum. The Robotics and Motion segment is has been enjoying robust demand patterns in robotics and light industry, while the Electrification Products unit is benefiting from positive construction and utility demand, particularly in the AMEA region.

ABB has earned a solid reputation for winning strategic awards and forging important partnerships. ABB recently teamed up with Hewlett Packard Enterprise to integrate its industry-leading digital offering — ABB Ability — with Hewlett Packard’s innovative hybrid information technology solutions. The partnership will leverage ABB’s expertise in operations technologies (“OT”) and Hewlett Packard Enterprise’s proficiency in IT to come up with joint industry solutions, which will help turn industrial data into insights and automatic action.

ABB also joined forces with Kawasaki Heavy Industries Ltd. recently to share knowledge and promote the benefits of collaborative robots, particularly those having dual arm designs.

We are highly optimistic about ABB’s recent $2.6-billion acquisition of GE Industrial Solutions, which will fortify its global foothold in electrification, and expand the company’s access to the North American market.

Further, the company anticipates the recent B&R buyout to bridge the gap in machine and factory automation, while also generating tremendous operational synergies. ABB anticipates these acquisitions to help shift its focus to higher growth segments, consequently becoming more competitive. ABB also agreed to acquire the data transmission business of the KEYMILE Group in July. This buyout is expected to expand communication networks business footprint in the industrial, transportation and infrastructure domains.

The company is highly positive about the impact of its White-Collar Productivity savings program, which has garnered significant cost savings over the past few quarters. Moreover, positive investments made by all three major markets of the company, namely utilities, industry and transport & infrastructure, are expected to boost the financials, going forward.

The consensus analyst community’s optimism toward the stock is reflected in its upward earnings estimate revisions. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised upward to $1.24 from $1.22 over the past 60 days, and reflects bullish analyst sentiment.

ABB Ltd Price, Consensus and EPS Surprise

ABB Ltd Price, Consensus and EPS Surprise | ABB Ltd Quote

 

Despite these positives, ABB’s exposure to oil and gas markets makes it susceptible to current price volatility in the market, posing a severe challenge. We believe lower capital spending for the upstream energy end-markets might hurt financials as well. In addition to these, sluggish industrial production and the projected slowdown are weighing on the company’s financials. Currently, the industrial slowdown in China is posing another threat to the company’s profitability, and might impact its performance in the upcoming quarters.

Other Stocks to Consider

Some top-ranked stocks in the broader space are Deere & Company DE, Briggs & Stratton Corporation BGG and Alamo Group, Inc. ALG, each sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere & Company generated four outstanding beats over the trailing four quarters, for an impressive average positive surprise of 19.5%.

Briggs & Stratton has beaten estimates thrice in the trailing four quarters, and generated an average positive surprise of 8.6% during the same period.

Alamo Group has a decent earnings surprise history for the same time frame, having beaten estimates twice for an average beat of 6.1%.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ABB Ltd (ABB) : Free Stock Analysis Report
 
Deere & Company (DE) : Free Stock Analysis Report
 
Alamo Group, Inc. (ALG) : Free Stock Analysis Report
 
Briggs & Stratton Corporation (BGG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research