On Friday, September 14, analysts at Exane BNP Paribas upgraded shares of ABB, Ltd. (ABB). The firm raised its rating on the stock from a Neutral rating to an Outperform rating and did not set a price target. As a result of the upgrade, shares of ABB reacted quite nicely, trading up 2.47% since the opening of trading on Friday. That said I wanted to examine the company a bit further and take a look at how it compares to some of its industry based competitors.
ABB, Ltd., which is based in Zurich, Switzerland, provides power and automation technologies for utility and industrial customers worldwide. The company's Power Products division manufactures and sells switchgears, circuit breakers, capacitors, surge arresters, cable accessories, high voltage components, re-closers, fuses, contactors, relays, sensors, motor control centers, ring main units, and power transformers for electric, gas and water utilities, and industrial and commercial customers. Its Power Systems division provides integrated power and automation solutions; alternating current (AC) and direct current (DC) transmission systems; flexible alternating current systems technologies; land and submarine cables, as well as accessories and services for medium- to high-voltage AC and DC systems; air- and gas-insulated substations; and network management solutions. This division also offers support agreements and retrofits to spare parts, service, consulting, and training; and undertakes analyses and design of new transmission and distribution systems. The company's Discrete Automation and Motion division manufactures and sells motors, generators, variable speed drives, programmable logic controllers, rectifiers, excitation systems, robotics, and related services for a range of applications in factory automation, process industries, and utilities. Its Low Voltage Products division provides protection, control, and measurement for electrical installations, enclosures, switchboards, electronics, and electromechanical devices for industrial machines and plants; and building control systems for home and building automation. The company's Process Automation division develops and sells control and plant optimization systems, automation products and solutions, as well as industry-specific application knowledge and services for the oil, gas, metals and minerals, marine, pulp and paper, chemical and pharmaceuticals, and power industries.
Comparable Returns on Assets
Over the last four quarters ABB has demonstrated very respectable returns on assets and if similar returns can continue, this catalyst could certainly contribute to the future growth of the company's stock. In the last 12 months ABB has demonstrated a return on assets of 6.67%, which when compared to several on the company's competitors, clearly outpaces Siemens (SI) a return on assets of 4.17%. By examining the numbers a bit closer we see that ABB outpaces SI in terms of Returns on Assets by a ratio 1.60 to 1.
Comparable Returns on Equity
Over the last four quarters ABB has demonstrated very respectable returns on equities and if these returns can continue, this catalyst will certainly be a contributing factor toward the company's future growth. In the last 12 months ABB has demonstrated a return on equity of 18.95%, which when compared to several on the company's competitors, clearly outpaces SI which demonstrated a return on equity of 15.24%. By examining the numbers a bit closer we see that ABB outpaces SI in terms of Returns on Equity by a ratio 1.24 to 1.
Profit Margin Comparisons
In my opinion, a company's margins can often be considered one of the more important key catalysts to consider before establishing a position. That said, I think the larger the profit margin the more attractive the company, and vice versa. In the last 12 months, ABB has demonstrated a profit margin of 7.70% which outpaced the profit margin of SI by a pretty fair margin. It should be noted that SI demonstrated a profit margin of 5.73% over the same period. By examining the numbers a bit closer we see that ABB outpaces SI in terms of Profit Margin by a ratio 1.34 to 1.
ABB, in my opinion, is one the better companies within the electrical equipment sector and if the company can continue to outpace the competition we could easily see ABB surpass the $22.50/share level. If the company can demonstrate an increase in both domestic and international sales over the next 12-24 months, I think ABB could be a winner for years to come.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.