We recently initiated our coverage on
), a leading power and automation technology supplier for diverse
utility and industrial customers, across the globe. The company
has a strong foothold in major industries like rail and wind
energy. It is also focused on optimizing its business portfolio
by expanding its worldwide distribution network and streamlining
its business by divesting underperforming businesses.
The company had reported weak fourth-quarter 2014 earnings
owing to sluggishness in its power systems (PS) business.
However, despite the continuation of global economic headwinds,
the company is receiving large orders in key sectors.
This power and automation bellwether also benefited from the
execution of its strong backlog and improved demand from
earlier-cycle projects in the quarter. Also, ABB's ongoing
initiatives in improving its cash flow generation, cost
containment and stabilization of its PS business are likely to
push the company forward in the future.
However, ABB's business is prone to be impacted by currency
fluctuations and adverse global political and economic conditions
since a significant portion of ABB's revenues is derived from
non-U.S. markets. Moreover, macroeconomic conditions impact the
level of capital invested in the business. A significant portion
of ABB's revenues is generated by power-related end markets,
which are dependent on capital investment and the credit
situation of the market.
The company also bears the risk of cost overruns as a
significant portion of its contracts are fixed-price in nature.
Also, some projects like turnkey products are usually long-cycle
projects that could be delayed or cancelled. As such, the company
may face losses or a drop in profit level under these contracts,
if costs increase above its estimates.
ABB also has several patents and intellectual property rights
for its existing and forthcoming products. However, it may lose
its competitive edge if the patents expire or are not recognized
in a country. Moreover, the company operates in highly
competitive markets that have been subject to increasing
consolidation. Given the range of products and services that ABB
offers and the diverse markets it serves, the company has many
Further, the company's business could be adversely impacted by
regional, national and/or global environmental norms and
regulations to significantly limit or reduce greenhouse gas
emissions in the future.
ABB currently holds a Zacks Rank #4 (Sell). However, other
stocks which are worth considering at the moment are
Plug Power Inc
AO Smith Corp.
). All three carry a Zacks Rank #2 (Buy).
ABB LTD-ADR (ABB): Free Stock Analysis Report
SMITH (AO) CORP (AOS): Free Stock Analysis
AVT INC (AVTC): Get Free Report
PLUG POWER INC (PLUG): Free Stock Analysis
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