Tuesday, December 29, 2015

Seeking Alpha: The Going's Getting Tougher - Will ABB Keep Going?

The outlook for industrial companies, particularly early-cycle companies, is looking worse as 2015 draws to a close. While a few sectors look as though they could do well in 2016, many sectors with significant capex spending like mining, energy, trucks, and autos are starting to look weak. For Swiss power and automation conglomerate ABB (NYSE:ABB), the weakness in mining, oil/gas, chemicals, and auto manufacturing is definitely a threat, and a call for stronger utility spending in the year ahead is definitely not a consensus call.

The good news is that it doesn't look as though ABB's management is just hiding under their desks and waiting for the storm to pass. Management has started up some relatively meaningful cost-cutting programs and is now examining whether they want to stay in the power grid business for the long term. Add in a healthy balance sheet that would facilitate M&A, and I think ABB is in okay shape heading into this downturn.

The shares are a trickier call right now. More often than not, buying into a downturn doesn't really work well. The exception is if and when the company in question manages to produce "less bad" performance than expected. I believe there's a chance for ABB to do that, and I do believe that these shares trade at a double-digit discount to fair value. That said, this company has earned some of the doubts around it concerning its margin leverage, its ability to spot and navigate industry downturns, and its ability to execute on value-additive M&A.

Continue here:
The Going's Getting Tougher - Will ABB Keep Going?

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