ABB Has Rebuilt Belief In Its Execution, But Macro Is Getting More Challenging

I’ve been pretty straightforward in my praise of ABB’s (NYSE:ABB) management team since Bjorn Rosengren joined the company, and they continue to deliver results with significant transformation (selling, divesting, and restructuring businesses) and restructuring, with the company now posting the best margins in many years despite ongoing input/supply chain inflation.

Valuation did get a little ahead of itself, though, and coupled with growing concerns about short-cycle and automation demand in 2023, the shares have underperformed of late. Since my last update, the shares have lost close to 20% of their value, underperforming the broader industrial sector by about 15%, as well as frequent comparables like Eaton (ETN), Rockwell (ROK), Schneider (OTCPK:SBGSY), and Siemens (OTCPK:SIEGY).

I do have some concerns about the macro outlook for 2023-2024, but my concern is more on market sentiment toward ABB than any meaningful alternation in the long-term outlook for major drivers like electrification and automation. Still, with a prospective long-term annualized return back in the high single-digits, this is a name worth at least a spot on a watchlist.

Continue reading here: 

ABB Has Rebuilt Belief In Its Execution, But Macro Is Getting More Challenging

ABB Undervalued As The Next Phase Of Its Evolution Begins

 

For a company that was perpetually restructuring over the last two decades, what CEO Bjorn Rosengren has accomplished in two years at ABB (ABB) impresses me. The company has embraced decentralization with gusto and starting moving more definitively in terms of rearranging the portfolio (selling Dodge, looking to IPO the charging business, spin-off turbocharging, and so on). With that, margins have improved and the company's credibility on the Street is substantially higher.

Now comes the next phase – growing off of this improved base, and this offers a different set of challenges and risks than the prior phase. I like ABB’s leverage to electrification and automation, two of what I believe will be the dominant trends over the next decade, but there will still be challenges to navigate, including the ongoing question of whether ABB has invested enough in software capabilities.

ABB has been a modest underperformer since my last update, but not by a wide margin. I still see core revenue growth potential of around 4% long term, as well as high single-digit to low double-digit FCF growth, and with that I think ABB is priced for a high single-digit long-term annualized return; good enough to keep it at a buy in my book.

 

Read the full article at Seeking Alpha: 

ABB Undervalued As The Next Phase Of Its Evolution Begins

ABB Delivering A Powerful One-Two Punch With Recovering End-Markets And Self-Improvement

 

I’d like to be smug about all of the sell-analysts that have had to scramble to justify their “sell” or “underperform” calls at much lower prices six months ago, but even I thought the rally in ABB (ABB) wasn’t likely to continue at the same pace. I really should have listened to the advice I so often give when discussing turnarounds – properly done, turnarounds of good companies can go a lot farther than even the bulls think.

So here we are about 30% later, with ABB posting another beat-and-raise quarter and seeing strength pretty much across all of its businesses. Over that time only Eaton (ETN) has outperformed these shares, with other automation and electrification names like Schneider (OTCPK:SBGSY), Rockwell (ROK), YASKAWA (OTCPK:YASKY), and Siemens (OTCPK:SIEGY) further behind. Of course, pull out to a longer-term view (like the last five years), and Eaton, Rockwell, and Schneider are well ahead.

I continue to love ABB’s leverage to important long-term trends like automation/robotics and electrification, and CEO Bjorn Rosengren is doing exactly what I hoped he’d do when he came over from Sandvik (OTCPK:SDVKY) to lead the turnaround. There could still be upside here to my 4% long-term revenue growth target and low-to-mid FCF margins, and a lot of key markets have yet to fully recover, but investors shouldn’t expect this recent share price appreciation pace to continue.

Read the full article here: 

ABB Delivering A Powerful One-Two Punch With Recovering End-Markets And Self-Improvement

ABB Posts A Decent Quarter, But Questions Remain On The Self-Improvement Plan

After seeing a strong market reaction to the hiring of Bjorn Rosengren and the prospects for a meaningful strategic turnaround, a little more reality has set in regarding the scale of the challenges ABB (ABB) is facing, and the sell-side has shifted to a "show me" footing. The stock hasn't done poorly, but after a period of outperformance it has more or less kept pace with the broader industrial sector since my last article, outperforming Rockwell (ROK), but underperforming Emerson (EMR), Siemens (OTCPK:SIEGY), and Schneider (OTCPK:SBGSY) (though just slightly on the latter).

I am still bullish on what ABB can become, but I also acknowledge that path from here to there isn't smooth and the risks aren't minimal. ABB still has to prove itself where software and digitization are concerned, and I see a risk that more nimble rivals like Schneider, Siemens, and Rockwell will leave ABB behind as the company spends time on restructuring efforts instead of growth projects. Valuation still leaves some upside, but management's going to have to deliver in the relatively near future to maintain the momentum.

 

Read more here: 

ABB Posts A Decent Quarter, But Questions Remain On The Self-Improvement Plan

ABB Delivers Surprisingly Good Margins, But End-Market Weakness Still Significant

You wouldn't necessarily know it by the share price reaction, but ABB (NYSE:ABB) had a surprisingly good quarter with underlying margin outperformance of nearly 300bp. It's certainly fair to wonder how much of that the company can retain as demand recovers, and orders were not impressive, but the solid profitability in Electrical Products (or EP) and Robotics & Discrete Automation (or RDA) is still a good starting point for the recovery.

I'm looking forward to ABB's November 19 Capital Markets Day, and particularly with respect to management commentary on further expense/margin initiatives, the software strategy, and potential non-strategic disposals. As far as valuation goes, I think the long-term return potential (in the low high-single-digits) is more acceptable than spectacular, but in an expensive sector, and with many still in the doubters camp where the long-term turnaround is concerned, I'm still relatively bullish on ABB shares.

 

Follow this link to the full article: 

ABB Delivers Surprisingly Good Margins, But End-Market Weakness Still Significant

ABB Has To Deliver Against Higher Expectations

The hiring of Bjorn Rosengren as ABB’s (ABB) CEO has gone over well with analysts and investors, helping spur about 15% of relative outperformance for the shares since that announcement, but there’s a lot of work still to be done. ABB most definitely has areas of strength (drives, robots, et al), but it also has a lot of issues that need to be addressed, including sub-scale share in a wide range of markets, weak margins in several segments, and a long history of lackluster performance. The potential is there, but potential has produced next to nothing tangible for investors over the last decade.

I bullish on what ABB could be, but I think that has to be tempered with what it is today, and that is an underperforming multi-industrial with a lot of “problem areas”. Markets like electrification and automation have very attractive long-term prospects, and the company has a proven CEO at the helm, but the Street’s benefit of the doubt is only going to last so long.

Follow this link to the full article:
ABB Has To Deliver Against Higher Expectations

ABB Offsetting Challenging Market Conditions With A Self-Improvement Story

The hiring of Sandvik (SVDKY) CEO Bjorn Rosengren has already started benefiting ABB (ABB), with investors increasingly willing to give the company more benefit of the doubt with respect to future margin improvement initiatives; so much so that it was tempting to go with a “Bjorn Again” title for this article. To be sure, Rosengren has proven his capabilities over his career, with his recent performance at Sandvik offering an attractive blueprint for ABB.

I’ve been bullish on ABB for a while on its self-improvement potential, but I do have some concerns that valuations for industrial stocks have gotten too frothy. I like ABB’s exposures to broad markets like electrification and industrial automation, and I see meaningful opportunities for the company to improve its execution. Still, that won’t happen overnight, and I’m concerned investors have overly high expectations for the entire sector.

Read more here:
ABB Offsetting Challenging Market Conditions With A Self-Improvement Story

ABB Steps Over A Lowered Bar, But Margin Improvement Is Still Nice

The good news is that ABB (ABB) beat earnings expectations for the third quarter. The less-good news is that expectations declined meaningfully going into earnings (about 5% or so at the EBITA line in recent weeks), lowering the bar, and the order and growth outlook is still pretty unexciting over the near term.

While investors reacted positively to the third-quarter results, and I do believe there’s long-term upside for ABB shareholders, I’d caution readers not to get too bullish on the near term. I do think key short-cycle markets like autos are closer to the bottom than not, and I’m bullish on the long-term potential for incoming CEO Bjorn Rosengren to make some meaningful improvements to the business, but ABB is a self-improvement story that will play out over years, not quarters. As I said, I do see upside from here, but it’s not the most undervalued or best risk/reward opportunity of the industrials I follow.

Read more here:
ABB Steps Over A Lowered Bar, But Margin Improvement Is Still Nice

ABB Gets It Right With The CEO Search, But A Lot Of Work Lies Ahead

Perhaps proving that even a blind squirrel can trip over a nut once in a while, ABB’s (ABB) board of directors made one of the best decisions I’ve seen it make in a long time, announcing on Aug. 11 that it had hired Björn Rosengren to become its next CEO. Mr. Rosengren joins ABB from Sandvik (OTCPK:SDVKY) and will assume the position on February 1, 2020.

I believe Rosengren is precisely the sort of CEO that ABB needs now, and he has relevant experience managing global multi-industrial conglomerates. What’s more, margin improvement and corporate agility are very much needed at ABB these days, and Rosengren’s record here is strong. While investors should recognize that ABB’s performance will likely get worse before it gets better, as the economic cycle turns and a new CEO brings still more disruption to operations, I believe there’s a more credible case now for owning ABB in anticipation of better results down the road.

Click here for more:
ABB Gets It Right With The CEO Search, But A Lot Of Work Lies Ahead

Another 'Ugh' Quarter From ABB

Looking at second quarter results, and reexamining the results over the past few years, it’s pretty clear that for all of the positives ABB (ABB) may have, including a strong portfolio of products and technologies across its electrification, automation, and robotics platforms, these assets have been badly mismanaged for years, and it’s going to take a while to climb out of this hole. New management, particularly if an outside hire is made for the CEO role, could help change the tone more quickly, but fundamental improvement will take a while and the cycle is now moving against the company.

I can’t honestly provide good reasons for choosing ABB over other automation investment options like Emerson (EMR), Rockwell (ROK), or Schneider (OTCPK:SBGSY) other than valuation and expectation. This company has beaten down to a point where I think the inherent value of the assets provides upside, but the competence of the board is very much up for debate and waiting for the ABB ship to turn could be a longer wait than most investors want.

Read more here:
Another 'Ugh' Quarter From ABB

New Tariffs Create New Headaches For Rockwell Automation

At the time of Rockwell’s (ROK) fiscal second quarter earnings report in late April, I commented that I thought investors would have an opportunity to buy shares in this high-quality automation enabler at a lower price. Since then, the shares have dropped more than 15%, significantly underperforming industrials in general, on growing concerns about a slowdown in the industrial end-markets that make up a large part of the discrete automation market. Now with the prospect of significant tariffs on Mexico on the table, Rockwell is taking another body-blow.

I do believe that Rockwell management is underestimating the risk of a broader slowdown in industrial end-markets, even though I do basically agree with its more bullish medium-to-long-term outlook. With a real risk of a “lower-for-longer” end-market demand situation and now potential pressures from new tariffs, I’m inclined to keep waiting even though Rockwell shares now trade below my estimate of fair value.

Click here for more:
New Tariffs Create New Headaches For Rockwell Automation

Emerson Stumbles Again On Margins, But The Long-Cycle Story Still Has Appeal

When I last wrote about Emerson (EMR), I tempered some of the undervaluation I thought I saw with the comment that, “… I have some concerns that the shares could underperform as investors look for more exciting stories.” Prior to a recent sell-off, Emerson shares had more or less been drifting around the sector averages, but lagged the likes of Ingersoll-Rand (IR), Honeywell (HON), and Yokogawa (OTCPK:YOKEY). Actual results did show further slowing in the business, but this looks more like a pause than a real shift.

I do think process automation order momentum has probably peaked, but there’s a rich project funnel to deliver on over the next few years, and I think Emerson has meaningfully improved its process automation operations after the Pentair (PNR) deal. Further progress in discrete and hybrid markets would be gravy on top of that. I do have some concerns about the Climate business, but not enough to cancel out what looks like a relatively undervalued opportunity in an expensive industrial sector.

Click here for more:
Emerson Stumbles Again On Margins, But The Long-Cycle Story Still Has Appeal

Eaton Keeping Its Ducks In A Row And Still Undervalued

In the context of my general view of "long-cycle good, short-cycle bad", Eaton's (ETN) performance was largely as I expected in the first quarter. The stock performance also continues to support my general idea that Eaton, along with Honeywell (HON) is a better-than-average choice right now, as the shares have outperformed its industrial peers since the fourth quarter report (though not keeping pace with Honeywell!).

I still have my worries about shorter-cycle industrial markets, but I think Eaton's broad exposure to a wide range of end markets across a wide range of geographies helps insulate it somewhat, and I think the company is well-placed to benefit from growth opportunities in areas like data centers, aerospace, and perhaps some renewed vigor in oil & gas. The shares aren't dramatically cheap but still offer relatively decent upside in a sector where a lot of names have gotten pricey and where expectations have gotten more and more demanding.

Click here for more:
Eaton Keeping Its Ducks In A Row And Still Undervalued

Cognex Hammered On Ongoing Weakness In Core Markets

Wall Street is weird sometimes. Institutional investors spend remarkable amounts of time collecting data, and yet can still be flat-footed at surprising times. Given the slowdown in factory automation reported by companies like ABB (ABB), Rockwell (ROK), and Schneider (OTCPK:SBGSY), not to mention commentary on the auto and electronics markets from other automation providers like Yaskawa (OTCPK:YASKY) and Fanuc (OTCPK:FANUY), it should have been pretty clear that Cognex (CGNX) would see some real weakness here.

Granted, Cognex’s guide for a year-over-year decline in revenue in 2018 was surprising, so there’s certainly validity to being surprised by the magnitude of what’s going on at Cognex. What’s more, I think you can ask some very relevant questions about whether 2018/2019 is a dip in an otherwise strong investment cycle, or whether 2017/2018 was more of a “supercycle”-like plateau that gave investors a false sense of the near-term market opportunity for machine vision.

I’m still bullish on the machine vision opportunity and Cognex’s long-term opportunities, but guidance for 2020 later this year will be critical. In the high $40s Cognex isn’t a must-buy, and I previously said I was looking for a mid-$40s buy-in price before this revision, but it’s a tempting idea now.

Read the full article here:
Cognex Hammered On Ongoing Weakness In Core Markets

Rockwell Skids On A Weaker Auto End-Market

The last three months haven’t been particularly kind to Rockwell (ROK), as the share price of what is usually a darling among industrials has lagged the broader industrial sector, and automation peers like Yaskawa (OTCPK:YASKY), Fanuc (OTCPK:FANUY), Nidec (OTCPK:NJDCY), Emerson (EMR), Schneider (OTCPK:SBGSY), and even ABB (ABB). To be fair, it was the significant slide after second quarter earnings on Thursday that did the damage, though the shares had still been lagging most automation companies (except ABB) and were only slightly better than the average industrial before the report.

Like 3M (MMM), Sandvik (OTCPK:SDVKY), SKF (OTCPK:SKFRY), Illinois Tool Works (ITW), and the Japanese automation companies, weakness in autos is a major contributor to Rockwell’s present weakness, but I took management’s guidance and comments as reflective of some potential warnings about spreading weakness in other industrial end-markets – something that I’ve been expecting as this year rolls on. Rockwell shares are now in a tough situation valuation-wise; they’re not so clearly undervalued that I’m inclined to say “just buy and wait for the cycle to reverse), but the valuation is getting more reasonable and this is a stock to watch more carefully now.

Read more here:
Rockwell Skids On A Weaker Auto End-Market

Fanuc Forecasting The Bottom, While Investors Price In The Recovery

It’s not exactly news that the stock market is a look-ahead mechanism for valuing companies, and that’s particularly important to keep in mind today when looking at factory automation companies. While business continues to deteriorate at Fanuc (OTCPK:FANUY) (6954) and may well not truly bottom out until the fall of 2019, the nearly 30% year-to-date move in the stock (well ahead of the average industrial stock) against a roughly 18% drop over the past year suggests that investors are already starting to look ahead to the recovery in orders, revenue, and profits.

Valuing Fanuc has always been problematic, as the company’s perceived quality has generally earned it a premium (not wholly undeserved in my opinion). Even though I’m modeling in a recovery starting in fiscal 2021 (the fiscal year ending March 2021), including multiple years of double-digit revenue growth and a sharp recovery in margins, the shares are well ahead of where those cash flow streams suggest it should be. With that, I’d prefer to wait for a cooldown among names like Fanuc and Yaskawa (OTCPK:YASKY) before stepping up.

Read more here:
Fanuc Forecasting The Bottom, While Investors Price In The Recovery

Strong Energy Management Providing A Spark For Schneider Electric

I’ve liked Schneider Electric (OTCPK:SBGSY) for a little while now, as I’ve thought the Street hasn’t fully appreciated what I think may be the best energy management/electrification business out there and an underrated automation business that is getting stronger in hybrid/process and is well-placed to benefit from expanding IoT adoption.

Although these shares have lagged peers/rivals like Rockwell (ROK) and Eaton (ETN) (another stock I’ve liked for a while) over the past year, as well as the broader industrial segment, the relative performance has been much stronger on a year-to-date basis and since my last update in mid-February. With the move in the share price, I think Schneider looks more fully and fairly valued now, but it’s still a name that I believe is worth holding and it’s definitely a name to look at again if there’s a market/sector sell-off.

Click here to read the full article:
Strong Energy Management Providing A Spark For Schneider Electric

Few Sour Notes For Honeywell

At the risk of drifting into the territory of a broken record, Honeywell’s (HON) performance continues to back up my view of the company as one of the best multi-industrials today. With Honeywell’s longer-cycle businesses hitting the sweet spots of their cycles, the company’s growth is finding another gear at a time when shorter-cycle results are likely to be choppier.

With its core businesses doing well (and with runways to do even better) and ample capacity to do more M&A, but no particular necessity, the only issue I have with Honeywell is, predictably enough, the price. It’s tough for me to push my valuation models beyond a fair value of $170 today, and I think Honeywell is now enjoying the status as a Wall Street darling and growth safe haven. Honeywell has earned this love and I wouldn’t advise stepping in front of this freight train, but it’s tougher to get excited about the returns on offer from this high level.

Read it all here:
Few Sour Notes For Honeywell

ABB Balancing The Reality Of Familiar Problems And New Leadership Opportunities

ABB (ABB) continues to be a relatively underwhelming, if not disappointing, player in the multi-industrial space, as the company largely missed out on the recent up-cycle due to various execution issues. While process automation and electrification are still performing relatively well, a global slowdown in discrete manufacturing and automation is creating some near-term challenges, and there is a lot left to do in M&A integration and margin improvement.

The announcement of the departure of the CEO could improve the tone somewhat, but this change is not coming from a place of strength and it is going to take time for the next CEO to make meaningful positive impacts – assuming the board lets that happen. While I do still see avenues for ABB to do better, the upside I see is certainly “at risk” and I don’t regard this as a core holding at this point.

Read more here:
ABB Balancing The Reality Of Familiar Problems And New Leadership Opportunities

Yaskawa Electric's Rocket Ride Anticipates Smooth Sailing

Yaskawa Electric (OTCPK:YASKY) (OTCPK:YASKF) (6506.T) has been a surprisingly volatile stock over the last two years, although it has been one of the best-performing automation stocks over that time, but the 50% move since the start of the year is extreme even by that standard. While many automation stocks have done quite well on year-to-date basis (including Cognex (CGNX), Fanuc (OTCPK:FANUY), and Nidec (OTCPK:NJDCY)), Yaskawa has been the standout as investors apparently not only think that the worst is over, but that demand in markets like China is going to rebound sharply.

Much as I like Yaskawa as a company, I don’t share this view. China’s export-oriented sectors did better than expected in the first quarter, and I don’t see things getting substantially worse unless the trade friction with the U.S. gets worse, but I think a sharp V-shaped recovery is too optimistic given mounting challenges in North America and Europe. With today’s price already anticipating a major long-term acceleration in growth, it’s hard for me to see what can take these shares higher other than just raw momentum.

Read more here:
Yaskawa Electric's Rocket Ride Anticipates Smooth Sailing