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ABB in the PRC

By Stephen D. Simpson, Simpson, – Updated Nov 15, 2016 at 5:37PM

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Markets for power and automation products are strong worldwide, but China is a key to long-term growth.

And so the turnaround of Switzerland's ABB (NYSE:ABB) continues.

Not only has the company found religion in terms of cost control and more efficient operations, but it's also gone a long way toward putting some legacy asbestos issues behind it. Oh, and it certainly doesn't hurt that there has been a global upswing in demand for power and industrial automation products.

Though revenue growth was somewhat restrained (up 7% in U.S. dollars, but 13% in local currencies), the aforementioned operational improvements helped spur that into 30% growth in EBIT. Orders looked quite solid to this Fool (up 15% in dollars, 21% in local currency), and the company produced positive operating cash flow for the quarter.

By and large, everything was doing pretty well this quarter except for the robot business. Given that the American car industry is a major consumer of ABB's robots and the state of Ford (NYSE:F) and General Motors (NYSE:GM), that's not really shocking.

Everywhere else, though, the segments managed to produce double-digit growth in EBIT, with power and process automation leading the way. Familiar themes still ring true here -- Western Europe and the United States are upgrading, while developing economies like China and India are building.

And ultimately, I think China (the "PRC" in the title of this piece) holds a lot of the keys to the future growth of this company. Not only are China's cities consuming ever more power as they grow (in numbers and sophistication), but there's also the rural factor to consider. There's a wide gulf between the quality of life in cities and the countryside in China, and I think the Chinese government is smart enough to realize they have to make life better in the countryside if farmers are going to stay on their farms and/or not raise a ruckus. That means more plants, more transmission gear, and more business for ABB -- although certainly some for the likes of Siemens (NYSE:SI) and General Electric (NYSE:GE) as well.

These shares aren't cheap, but then, power infrastructure and industrial automation are popular investment destinations today. Not really a fan of following hot money and ignoring valuation, I'd like to wait in the hopes of a cheaper price on ABB shares, though the performance of the company and the strength of incoming orders might make that a pipedream.

For more related Foolishness:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
F
$12.31 (-3.60%) $0.46
General Electric Company Stock Quote
General Electric Company
GE
$64.55 (-1.24%) $0.81
General Motors Company Stock Quote
General Motors Company
GM
$35.48 (-5.08%) $-1.90
Siemens Aktiengesellschaft Stock Quote
Siemens Aktiengesellschaft
SIEGY
$47.86 (-2.64%) $-1.30
ABB Stock Quote
ABB
ABB
$25.76 (-1.38%) $0.36

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