ABB Is Getting There, But The Process Has Been Ugly

There’s an old joke that says if you like sausage, you should never watch how it’s made. I feel that ABB (ABB) has been a little like that – the company has spent most of the past four years restructuring and repositioning the business (including sizable M&A), and while the company is now on better footing, the whole process has left a lot of investors feeling squeamish and put off by the name.

I can’t promise that the new ABB will be a significant improvement over the old one, but I do know that this is a company with leadership in a wide range of end-markets that can (and should) provide above-average growth in the coming years. I also know that ABB is operationally leaner and more focused on businesses that can provide steadier, higher-margin revenue for the long term. I still expect relatively less from ABB than I do some of its closest peers (including Rockwell (ROK)), but mid-single-digit revenue growth and low double-digit FCF margins can support a fair value a little higher than today’s price and high single-digit total returns.

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ABB Is Getting There, But The Process Has Been Ugly