ABB Ltd. (ABB) recently reported a 21% increase in revenue for the first quarter of 2011 due to strong demand stemming from the global economic recovery.
The company was also able to leverage its fixed expenses, leading to a 37% increase in operating earnings.
Order backlog at the end of the quarter was strong, prompting analysts to raise their estimates, which sent the stock to a Zacks #2 Rank (Buy). If consensus estimates materialize, EPS would grow 32% in 2011 and 23% in 2012.
The company also pays a dividend that yields 1.7%.
ABB Ltd. provides power and automation technologies for its utility and industry customers.
First Quarter Results
On April 27, ABB reported its results for the first quarter of 2011. Revenue surged 21% year-over-year to $8.40 billion, well ahead of the Zacks Consensus Estimate of $7.95 billion.
Orders rose 28% due to strong demand stemming from industrial growth in most regions.
The increase in revenue allowed ABB to leverage its fixed expenses, which amplified earnings growth. Earnings before interest and taxes as a percentage of revenue expanded from 10.2% to 12.1% for instance, and operational earnings before interest, taxes, depreciation and amortization (EBITDA) jumped 37%.
Earnings per share came in at 29 cents, 2 cents shy of the Zacks Consensus Estimate, but up 45% from the same quarter in 2010.
Strong Order Backlog
The company stated in its Q1 press release that “the global macroeconomic environment in ABB’s major end markets remains favorable.” Order backlog at the end of March backed this claim up, rising 15% year-over-year to $29.265 billion.
Management also expects to see the emerging markets as major growth drivers in the medium term. However, it also expects growing demand in developed economies over the coming quarters.
Despite the earnings miss, analysts raised their estimates for both 2011 and 2012; a trend that has been occurring for several months as the global economic recovery has gained traction:
The Zacks Consensus Estimate for 2011 is $1.51, representing 32% growth over 2010 EPS. The 2012 consensus estimate is $1.86, corresponding to 23% growth.
It is a Zacks #2 Rank (Buy) stock.
Fundamentals
Shares of ABB trade at 17.5x forward earnings, in-line with both the industry average and its 10-year median.
The company posted Return on Equity of 18.4% over the last 12 months, well above the industry average of 11.4%. This justifies its price to book multiple premium (3.7 vs. 2.6).
The company also pays a dividend that yields a solid 1.7%.
ABB Ltd. was founded in 1883 and is headquartered in Zurich, Switzerland. It has a market cap of $61.1 billion.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
ABB LTD-ADR (ABB): Free Stock Analysis Report
Zacks Investment Research
