ABB Transformers to Power Saudi Arabia - Analyst Blog


On Jul 2, ABB Ltd. ( ABB ) announced that it has received a $78 million contract from Saudi Electricity Company (SEC) for providing transformers for a couple of new combined-cycle power plants that will enhance the transmission capacity in the region. Though the order was booked in the backlog of second-quarter 2014, its financial terms are kept undisclosed.

Following the news, the company's shares edged up 0.4% to $23.02 on Jul 3. However, the momentum could not be sustained and the shares fell again to $22.93 on Jul 7.

Transformers are critical for any power grid as they ensure a safe and reliable conversion of electricity from one voltage system to another. The scope of the contract requires ABB to provide SEC with generator step-up (GSU) transformers, power transformers as well as station service transformers for its power plants. These transformers are expected to boost the electricity supply in the capital - Riyadh and nearby regions to aid the rising demand for both industrial and household purposes.

The petrochemicals driven growth coupled with a steadily increasing population are the key factors behind the increasing demand for electricity in Saudi Arabia.  The country has been taking persistent efforts to boost power-generation capacity. It aims to increase the short-run capacity by as much as 50% to produce about 91 gigawatts (GW) by 2020. In the long run, this national power transmission and distribution operator of Saudi Arabia intends to increase the capacity by 100%.

ABB has expertise in producing a range of high-capacity transformers including 1200 kV power transformers, transformers that support dry- and liquid-distribution, traction and special application transformers. These apart, ABB provides relevant components and related services.

ABB currently has a Zacks Rank #3 (Hold). Some better-ranked stocks that can be considered at present include EnerSys ( ENS ), AO Smith Corp. ( AOS ) and ESCO Technologies Inc. ( ESE ). While EnerSys and AO Smith sport a Zacks Rank #1 (Strong Buy), ESCO Technologies carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: ABB , AOS , ESE , ENS

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