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ABB Divests 80.1% Stake in Power Grids Business to Hitachi

Zacks Equity Research
·3 mins read

ABB Ltd ABB yesterday announced that it completed the divestment of its 80.1% stake in the Power Grids business. The other party to the transaction was Tokyo, Japan-based Hitachi, Ltd. HTHIY.

The stake sale was originally announced by ABB in December 2018. It is worth noting here that the company’s share price increased 3.1% yesterday, closing the trading session at $23.26.

Notably, ABB’s Power Grids business engages in providing systems, software, products and service solutions. The offerings are mainly used by the company’s infrastructure, industry, utility and transport customers. The business is spread across Africa, the Americas, Asia, Europe and the Middle East.

Inside the Headlines

As noted, ABB Power Grids under Hitachi will operate as a joint venture named Hitachi ABB Power Grids. With its headquarters in Switzerland, the joint venture will have 36,000 employees, business in at least 90 countries and revenues (annualized) of $10 billion.

Initially, ABB will hold a 19.9% stake in Hitachi ABB Power Grids. However, it will have the option to dispose of its stake in the coming three years at fair market value — with the floor price set at 90% of the enterprise value. Notably, the enterprise value of 100% of ABB Power Grids is pegged at $11 billion.

The company intends on using the net proceeds from the divestment for rewarding shareholders with $7.6-$7.8 billion. To begin with, it anticipates repurchasing its shares through a buyback program for 10% (or 180 million) of its outstanding shares.

The divestment is likely to be a win-win situation for ABB and Hitachi. While ABB can focus more on its core businesses, the expansion in the power grid industry will become easy for Hitachi.

Zacks Rank, Price Performance and Estimates

ABB currently has a market capitalization of $48.9 billion and a Zacks Rank #4 (Sell). The company is wary about the volatile oil market and the adverse impact of the pandemic on its operations.

In the past three months, the company’s share price has increased 41.2% compared with the industry’s growth of 35.3%.




 

Currently, the Zacks Consensus Estimate for ABB’s earnings is pegged at 70 cents per share for 2020 and $1.03 for 2021, suggesting growth of 9.4% and 6.2% from the respective 60-day-ago figures.

ABB Ltd Price and Consensus

 

ABB Ltd Price and Consensus
ABB Ltd Price and Consensus

ABB Ltd price-consensus-chart | ABB Ltd Quote

Stocks to Consider

Two better-ranked stocks in the Zacks Industrial Products sector are II-VI Incorporated IIVI, and Applied Industrial Technologies, Inc. AIT. Both II-VI and Applied Industrial sport a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for II-VI and Applied Industrial have improved for the current year. Further, positive earnings surprise for the last reported quarter was 213.33% for II-VI and 2.00% for Applied Industrial.

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ABB Ltd (ABB) : Free Stock Analysis Report
 
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IIVI Incorporated (IIVI) : Free Stock Analysis Report
 
Hitachi Ltd. (HTHIY) : Free Stock Analysis Report
 
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