Company Spotlight :: ABB Ltd.

3/13/2017    ::    Ticker: ABB    ::    Div. Yield: 3.30%    ::    Closing Price: $22.64

COMPANY DESCRIPTION

Based in Zurich, Switzerland, ABB Ltd is a Swedish-Swiss industrial technology company providing technological solutions for utility, industrial, transport, and infrastructure customers. ABB Ltd’s products (power drives and switches) enhance energy efficiency through the use of high end materials and technology.
​
Ulrich Spiesshofer has been the President and CEO since 2013. He began with ABB Ltd in 2005. 

COMPANY HIGHLIGHTS AND FINANCIALS

ABB Ltd creates products, systems, and software that integrate with digital systems and equipment. The company organizes these solutions into four divisions: electrification products, robotics and motion, industrial automation, and power grids. ABB Ltd implements many of these solutions through partnerships with other companies and governmental departments. Recent partnerships include collaborations to implement electric bus and transit systems in several countries, a system to manage the entire lifecycle of energy generation (especially renewable), and R&D research for high-power electric charging stations. Much of ABB’s recent partnerships focus on sustainability and integrating renewable sources into existing systems. Within their robotics division ABB Ltd has started producing industrial robots in the U.S. (previously produced in Sweden and China) with the goal of having over 75% of all North American models made in the U.S.

KEY POINTS

• A leader in power and automation technologies.
• Leading supplier of industrial robots and intelligent motor solutions.
• Excellent financial health with $5.9 billion in debt and $5.5 billion in cash.
• Compelling upside as valuations and growth remain attractive due to growth in power generation and robotics.

VALUATION AND RISKS

As of the date of this report, ABB Ltd is trading at a slight discount compared to its historical valuations and below fair value based on our scenario analysis of free cash flow growth. ABB Ltd has a dividend yield of 3.3% and generates over $3 billion in free cash flow creating the flexibility to continue to raise the dividend over time. On a free cash flow basis, we expect ABB Ltd to grow cash flow at 4% annually over the next decade, which is also in line with its last 10 year growth rate. Modeling our conservative estimation places a price of $27.61 on shares, which is almost a 22% premium based on the current price. If our conservative assumptions turn out to be overly optimistic, we still feel there is a margin of safety built into the current price based on the company’s strong cash flow generation and dominant market presence.

Though considered a leader in the power generation market, ABB Ltd operates in a highly competitive environment; Siemens is their primary competitor in this market. We would like to see management’s continued discipline in regard to capital allocation and cost efficiency. Their continued focus on competitive pressures within the U.S. and growth initiatives will be monitored closely.

Weighing the risks and rewards, we feel ABB Ltd currently offers a good long-term opportunity.

---

Patrick Mason, Investment Analyst, Cairn Investment Group

---

DOWNLOAD COMPANY SPOTLIGHT

Cairn Investment Group and its affiliates (“Cairn”) produces Company Spotlight reports (“Reports”) for its clients and the general public. The Reports are impersonal and do not provide individualized advice or recommendations for any specific investor or portfolio. Investing involves substantial risk. Cairn makes no guarantee or other promise as to any results that may be obtained from using the Reports. Past performance should not be considered indicative of future performance. No reader should make any investment decision without first conducting his or her own research and due diligence. At various times Cairn may own, buy or sell the securities discussed for purposes of investment or trading. Cairn disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in the Reports prove to be inaccurate, incomplete or unreliable or result in any investment or other losses.

The Reports commentary, analysis, opinions, advice and recommendations represent the then current views of Cairn, and are subject to change at any time. The information provided in the Reports is obtained from sources the author believes to be reliable. However, the author has not independently verified or otherwise investigated all such information.

​This is not a solicitation or offer to buy or sell any securities. Cairn does not receive any compensation from any of the companies featured in the Reports. Any redistribution of the Reports or the information contained therein, without the written consent of Cairn is strictly prohibited.