Goldman Sachs analyst Daniela Costa added ABB stock to her firm’s European conviction list.
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Swiss industrial giant ABB is becoming a Wall Street darling not only because the global economy is improving, but because the company has some opportunities unique to its business. If one analyst is right, its shares could gain 50% in the coming months.
Thursday, Goldman Sachs analyst Daniela Costa put stock of Buy-rated ABB (ticker: ABB)—the maker of automation, robots and electrification products—on her firm’s European conviction list, reserved for Goldman’s best ideas.
The call is helping shares a little. ABB stock is down about 0.3% in early trading, while the S&P 500 and Dow Jones Industrial Average are falling sharply on renewed Covid fears.
“ABB is not being credited for its self-help or organic opportunities,” wrote Costa in a Thursday report. Self-help is what Wall Street calls things a company can do to boost earnings regardless of what’s going on in the broader economy. In the case of ABB, Costa believes the company can boost profit margins by up to 5% by turning around underperforming divisions and by selling businesses with below average growth. Better profit margins translate into faster earnings growth.
ABB trades for about 21 times estimated 2022 per-share earnings, a discount to other stocks she covers, despite faster-than-expected growth.
ABB has announced plans to spin or sell three businesses—turbocharging, power conversion and mechanical power transmission. The company also plans to list its EV charging business. Those events can also unlock some value in ABB shares.
When she looks at ABB on a sum-of-the-parts basis—valuing all of the business held and being spun off separately—Costa sees 50% upside. Her official price target, however, is about $48.40 (or 44 Swiss Francs) per share, up about 38% from recent levels.
Costa isn’t the only one feeling better about the stock. On July 2, Kepler Cheuvreux analyst William Mackie upgraded ABB to Buy from Hold. His price target is about $40 a share.
On July 6, Deutsche Bank analyst Gael de-Bray upgraded ABB as well, but only to Hold from Sell. de-Bray’s target price moved to about $32 a share from $29.
Overall, ABB isn’t widely loved, it’s just picking up analyst momentum. Today about 40% of analysts covering the stock rate shares Buy and 15% rate shares Sell. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average Sell-rating ratio is about 7%. A month ago, 36% of analysts rated ABB shares Buy and 17% rated them sell.
The lower-than-average Buy-ratio isn’t hurting shares in 2021. ABB stock is up about 25% for the year, better than comparable gains of the overall market.
Write to Al Root at [email protected]
