ABB Ltd’s (VTX:ABBN) Earnings Grew 17.84%, Did It Beat Long-Term Trend?
Examining how ABB Ltd (SWX:ABBN) is performing as a company requires looking at more than just a years’ earnings. Below, I will run you through a simple sense check to build perspective on how ABB is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its electrical industry peers. Check out our latest analysis for ABB
Did ABBN beat its long-term earnings growth trend and its industry?
I like to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique enables me to analyze different stocks in a uniform manner using the most relevant data points. For ABB, its most recent earnings (trailing twelve month) is US$2.22B, which, in comparison to last year’s level, has increased by 17.84%. Given that these values are fairly nearsighted, I’ve determined an annualized five-year figure for ABB’s earnings, which stands at US$2.51B This suggests that, even though earnings increased from last year’s level, over a longer period of time, ABB’s earnings have been deteriorating on average.
Why could this be happening? Well, let’s look at what’s occurring with margins and whether the rest of the industry is feeling the heat. Although revenue growth in the past couple of years, has been negative, earnings growth has been deteriorating by even more, implying that ABB has been growing its expenses. This harms margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the CH electrical industry has been enduring some headwinds in the prior year, leading to average earnings dropping by more than half. This is a a strong change, given that the industry has been delivering a relatively flat growth rate over the past couple of years. This suggests that whatever recent headwind the industry is enduring, ABB is less exposed compared to its peers.
What does this mean?
ABB’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company.
I suggest you continue to research ABB to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for ABBN’s future growth? Take a look at our free research report of analyst consensus for ABBN’s outlook.
2. Financial Health: Is ABBN’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
