Morningstar | ABB Posts Mixed Results, but Shares Offer Attractive Entry Point for Long-Term Automation Exposure
ABB reported slightly lower (about 2%) 2018 results than our forecasts on revenue and earnings. However, we are maintaining our wide moat rating and $25.40 and CHF 25 fair value estimates. The company also announced a partnership with Dassault Systemes, which increases its exposure to higher-value industrial automation software with an offering more in line with that of Siemens and Schneider Electric. In addition, management proposed new medium-term targets of 3%-6% comparable revenue growth and EBITA margins of 13%-16%, with the latter suggesting moderate margin upside relative to our current forecasts.Group revenue grew at 4% and orders by 8% on organic basis. The robotics division came in with better growth than our forecasts, up 11% in the fourth quarter and 8% in the year, about 200 basis points above our 6% forecast. The electrification division (low voltage) also posted good growth. The industrial automation division (process automation) posted just 1% growth, about half of what we expected. However, given the long-term potential for process automation and the recent partnership with Dassault, we see upside potential from the current base of business in that division. The shares traded down modestly on the results, providing an attractive entry point for investors looking for exposure to longer-term industrial automation expansion.
ABB specializes in power and automation technologies. Co. provides a broad range of products, systems, solutions and services that are designed to boost industrial productivity, increase power grid reliability, and enhance energy efficiency. Co.'s automation businesses serve a full range of industries with process optimization, control, measurement and protection applications. Co.'s power businesses focus on power transmission, distribution and power-plant automation, and support electric, gas and water utilities, as well as industrial and commercial customers.
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