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Will Solid End-Market Growth Boost ABB's Earnings in Q2?

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Will Solid End-Market Growth Boost ABB's Earnings in Q2?

Strong prospects of ABB's end markets coupled with its recent investments are expected to be conducive to its second-quarter results.

ABB Ltd ABB is scheduled to report second-quarter 2018 results on Jul 19.

In the last reported quarter, the company’s adjusted earnings came in line with the Zacks Consensus Estimate of 31 cents. Overall, ABB has outpaced estimates thrice in the trailing four quarters, with an average positive surprise of 12.20%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

ABB remains confident about the prospects of all three major markets, namely, utilities, industry and transport & infrastructure. Going forward, the company anticipates gaining from high investments in ultra-high voltage DC power transmission projects in mature and emerging markets. On the industrial side, investments in discrete and hybrid industries, such as automotive, food and beverage and machinery, are expected to stoke growth. In a nutshell, positive development in the electricity value chain, rapid progress of Internet of Things, Services and People and a surge in energy-efficient transport & infrastructure bode well for the company.

Over the past few years, ABB has made considerable investments in North America, in a bid to become a leading player in the power and automation technologies business. The company expects utility customers to invest further in transmission and distribution projects and renewable sources like solar and wind. Also, of late, the company has been witnessing strength in its matured end-markets, including Europe and emerging countries like China and India. These factors are expected to prove conducive to the company’s top line in the coming quarters.

Further, the company’s recent major investments including the GE Industrial Solutions buyout are likely to further strengthen its position in Electrification by improving market access in North America. The buyout will establish a long-term strategic supply relationship for GE Industrial Solutions as well as ABB products that GE sources currently. The deal will help accelerate ABB’s operational momentum and will be critical in cementing its future competitive position in automation and electrification, thus likely to boost its top-line growth.

However, the company’s order level in certain business segments has been hit in the recent times by weak oil and gas demand. Specifically, demand was impacted in Electrification Products and Power Grids due to uncertainties related to oil & gas and infrastructure. Also, it has been facing strong structural headwinds in its largest business — Power Grids — in the past few quarters, and the trend is expected to continue in 2018.

This apart, ABB has been facing tangible commodity price headwinds, which have been hurting its profits. The prices are still rising and are expected to adversely impact profits, going forward as well. Also, the company bears the risk of cost overruns, as a significant portion of its contracts are fixed price in nature.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for ABB in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: ABB has an Earnings ESP of 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 36 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ABB Ltd Price and EPS Surprise

ABB Ltd Price and EPS Surprise | ABB Ltd Quote

Zacks Rank: The company carries a Zacks Rank #3, which increases the predictive power of the ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Manitowoc Company, Inc. MTW has an Earnings ESP of +14.36% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eaton Corporation, PLC ETN has an Earnings ESP of +1.32% and a Zacks Rank of 2.

Emerson Electric Co. EMR has an Earnings ESP of +0.71% and a Zacks Rank #3.

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