ABB Downgraded to Strong Sell

Zacks Investment Research downgraded ABB Ltd. (ABB) to a Zacks Rank #5 (Strong Sell) on Feb 15.

Why the Downgrade?

ABB witnessed sharp downward estimate revisions after reporting disappointing fourth-quarter 2013 results. Further, this bellwether in power and automation technologies lowered its compound annual growth rate (CAGR) for the plan period 2011–15, estimated to be in the range of 4–5%, compared with the previously expected 5.5–8.5%. The decrease was due to the ongoing slump in capital expenditures and a sluggish Power Systems business.

On Feb 14, ABB Ltd. reported full-year and fourth-quarter 2013 earnings of 23 cents per share, a decline of 12.0% from the prior-year figure of 26 cents. The quarterly results included the effect of additional charges stemming from certain projects in the Power Systems (PS) division.

For 2013, ABB reported earnings of $1.21 per share, reflecting an increase of 3% year over year.

Though ABB’s revenues remained strong, its order level showed deterioration of 4% in terms of local currency to $10.0 billion, with a backlog of $26.0 million. Orders in Europe grew on the back of a rise in automotive and transmission investments in Germany. This increase more than offset the weakness in Eastern Europe and the Nordic region. In the Americas, the automation industry remained strong with base orders in the U.S. increasing in double digits.

However, the growth was partially offset by decline in large orders from the U.S., Canada and Brazil. On the other hand, order growth in Asia resulted from an increased demand in Australia, India and South Korea. However, orders decreased in China due to a decrease in the number of large orders.

The Zacks Consensus Estimate for the first quarter of 2014 contracted 5.7% to 33 cents and declined 5% to 40 cents for the second quarter of fiscal 2014. For fiscal 2014, all the three estimates were revised downward, pulling down the Zacks Consensus Estimate by 5.4% to $1.59 per share in the last 7 days. However, for 2015 the estimates were stagnant at $1.80 a share.

Other Stocks to Consider

Not all heavy industry stocks are performing as poorly as ABB. Favorably-ranked stocks that are worth considering include AECOM Technology Corp. (ACM), Quanta Services Inc. (PWR) and Fluor Corp. (FLR), all three carrying a Zacks Rank #2 (Buy).

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