This Robotics Stock Has Dropped 17%. EVs Might Turn It Around.
A shortage in semiconductor chips caused robotics and industrial automation giant ABB to miss first-quarter revenue forecasts in April, dragging down the stock.
But new leadership and the effects of the electrification trend that is sweeping the globe—ABB (ticker: ABB) is the market leader for robotics in China and it also makes charging points for electric vehicles around the world—means this is time for the stock to get a boost.
The Zurich-based company has turned a corner since CEO Björn Rosengren joined in 2020, following a decade of disappointing performance. Disruption from a period of deal making caused ABB’s American depositary receipts to decline 17% in the past 12 months. Shares also have a dual Swiss and Swedish listing.
A series of tailwinds could push the shares higher. In its last quarterly update, ABB said its order book jumped 28% based on strong demand from customers across the board rather than any one-off mega orders. This was the trigger for Anders Roslund, an analyst at Pareto Securities, to estimate future sales will rise 30%, to $36.6 billion, in 2024.
“The extraordinarily strong order intake will support better margins in the coming quarters,” he wrote in a note in which he estimates the margin on earnings before interest and taxes will rise from 13.4% in 2021 to 15.6% by 2024.
Revenue could rise further after ABB’s e-mobility division signed a new agreement with Shell (SHEL.UK) in April to provide electric-car charging stations. Shell has about 90,000 charging points, with ambitions to reach 2.5 million by 2030, either at residential, commercial, or Shell retail sites.
Sebastian Kuenne, an analyst at RBC Capital Markets, estimates ABB has 10% to 13% global market share for EV battery-charging equipment and has developed the world’s fastest car charger—the Terra, which has 360-kilowatt output versus a standard output between 50kw and 350kw.
The Shell agreement could generate average annual sales of $50 million a year by 2025 and $130 million a year in 2026-30, Kuenne estimates.
“We do not know how big ABB’s portion in Shell’s installed charger fleet will be,” he wrote. “But even if ABB supplies only 50% of those chargers it would add considerable revenues to the group, accelerate sales growth in the next years and increase earnings visibility.”
ABB, which has a market value of 58 billion Swiss francs ($57.9 billion), employs 105,000 workers in more than 100 countries. It trades at a multiple of 19 times this year’s expected earnings, in line with its peers. ABB posted income from operations of $5.7 billion in 2021, up from $1.6 billion in 2020. Sales in 2021 were $29 billion, up from $26 billion in 2020.
Rosengren, in the first-quarter update, said that increased efficiency would help deliver margin improvement of at least 15% toward the 2023 target.
“Over the past 24 months, ABB has made solid progress in implementing its decentralized organization and improving quality of revenue,” Rosengren told Barron’s. “But we are still not where we want to be. Our technology leadership, aligned with sustainability and the global megatrends, is at the core of ABB’s purpose and gives us a competitive edge.”
ABB will also create value by spinning off parts of its business, including the e-mobility division. The company on June 7 delayed the division’s initial public offering, citing challenging market conditions. Joseph Giordano, an analyst at Cowen, estimates the IPO’s valuation could be about $4.5 billion.
Rosengren said ABB is also eyeing a sale or spinoff of the turbocharging division, which boosts engine power. That could fetch about $4 billion. b