Saturday, July 18, 2009

ABB Still Well Positioned

In doing my normal Saturday reading, I came across a feature in Barrons about Swiss industrial/electrical giant ABB (ABB). I've held shares in this company for about a year, and I continue to like this company, even though it has hit a rough patch (who hasn't?) Here's a couple of meaningful quotes from the Barron's feature:

  • ABB's fortunes in the past year have been dented by exposure to the automobile and construction industries, but the Swiss engineering giant's power-transmission and distribution activities should continue to generate earnings that offset the weakness.
  • Product mix and geographic diversity so far have insulated ABB (ticker: ABB) from the worst of the recession, and it looks well positioned to prosper. Its balance sheet is still one of the best in the industry, with $2 billion in net debt and nearly $5 billion in cash giving the company a solid financial buffer and a war chest for acquisitions.
  • Those prospects aren't reflected in ABB's shares. The stock has shed about one-third of its value during the past 12 months; late Friday, ABB's American depositary receipts were trading at $16.15. The Dow Jones Europe Stoxx 600 industrial-goods and services sector has fallen about 25% during the same period. ABB trades at a trailing 12-month average price/earnings ratio of 11.3 times.

Their automation and robotics sectors are getting hit pretty hard. But their power systems and process automatic sectors are really doing well(up 36 and 10 percent YOY respectively) , as they are picking up orders all over the world. These guys are specifically hitting it hard in emerging markets. In fact, their order growth in the Middle East and Africa is up 119% year over year, and now making up 21% of all orders.

They are well diversified with their four largest business segments making up 29, 24, 23, and 22 percent of all orders.

ABB is right at the center of alternative energy production as well. Think of smart grid technology, which is just starting to expand, as well as wind and solar products, and we all know the potential of those.

If you have time, check out this presentation detailing their latest updates in the industry and how they stand as a company. Click to view presentation (pdf).

The bottom line here is that although they are still being hurt by the recession, its a company that is holding up well (almost 5billion in net cash), and will certainly be strong when the economy recovers. Stock wise, it has hovered in the 15-16 range for quite some time. They report earnings this week, and we should get a clearer picture on where orders are coming in. If we get any negative reaction from the market, I might very well use the opportunity to add shares.

Disclosure: Long ABB.


TraderMark said...

Its a good company. Like Fluor a bit more but a good play on the other side of the pond.

Michael said...

I agree. And how about the strong order growth from the Middle East and Africa? Although I read a story about a big solar project in Africa that is strictly power for Europe (I image they categorize that as Africa). But This is still something to watch.

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