Saturday, August 5, 2017

ABB Has To Be Better Than This

When you find yourself slipping into the role of an apologist for a company, that's a good time to revisit whether owning the shares still makes sense. Such is the case with ABB (NYSE:ABB), as this European industrial conglomerate has managed to deliver “not good enough” performance for longer than I'd care to acknowledge. ABB's five-year, three-year, and one-year performances have been better than Emerson (NYSE:EMR), but not up the standards set by Siemens (OTCPK:SIEGY) and Rockwell (NYSE:ROK), and Schneider (OTCPK:SBGSY), too, has seemed to have its house in better order of late. Granted, these are blunt comparisons of businesses, but it does support the idea that ABB has room (and need) for improvement.

There are still bullish arguments to support ABB. I believe the company is underway with plans to make its automation business(es) even more competitive, and I think the long-term potential for electric vehicle-related charging and infrastructure equipment is meaningful. Moreover, the company has the liquidity and flexibility to execute meaningful deals if management wishes to go that route. I still believe 3%-4% long-term revenue growth is plausible (although my 5% to 6% FCF growth rate is looking more tenuous), supporting a fair value around $25.

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ABB Has To Be Better Than This

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