Undervalued ABB Stock Poised for Serious Growth in 2022
When it comes to electric vehicle (EV) infrastructure stocks, most investors seem to focus on the same names, but if you’re looking for untapped potential in an overlooked EV stock, shine a light on ABB Ltd (NYSE:ABB).
ABB stock isn’t the first stock that comes to mind in the EV industry, but it should certainly be on investors’ radar. The Zurich, Switzerland-based company isn’t a pure-play EV stock. Instead, it’s a diversified electrification and robotics company. (Source: “Investors,” ABB Ltd, last accessed April 12, 2022.)
A global leader in EV infrastructure, ABB provides a complete range of charging and electrification solutions for electric cars, electric and hybrid buses, vans, trucks, ships, and railways.
ABB Ltd noted that it’s been making efforts to separately list its e-mobility business. It expects the process to be complete in the second quarter of 2022.
The company entered the e-mobility sector in 2010. To date, it has sold more than 680,000 EV chargers in more than 85 markets.
ABB has been making moves to focus on its leading position in electrification and automation. To that end, it closed the sale of its Mechanical Power Transmission division last November, which resulted in a book gain of $2.2 billion. (Source: “ABB Completes Divestment of Mechanical Power Transmission Division (Dodge),” ABB Ltd, November 10, 2021.)
With the divestment, the company has completed the first of three previously announced exits from divisions. In November 2020, ABB Ltd said it was exploring options to divest its turbocharging, mechanical power transmission, and power conversion divisions. The three units represented about $1.8 billion of combined annual revenues, or approximately six percent of the company’s total revenues.
While the sales of its non-core divisions are underway, ABB continues to increase its global footprint in the EV space. In October, the company announced it was teaming up with Lilium NV (NASDAQ:LILM), an electric vertical takeoff and landing (eVTOL) company. (Source: “ABB and Lilium Team Up to Revolutionize Charging Infrastructure for Regional Air Travel,” ABB Ltd, October 13, 2021.)
ABB will provide the charging infrastructure for Lilium’s high-speed regional air network, which is scheduled to take the skies in 2024. ABB’s charging points are capable of fully charging batteries in approximately 30 minutes and charging up to 80% in 15 minutes.
This will help Lilium NV reach its target of 20 to 25 flights per aircraft per day. The initial range of a seven-seat jet is expected to be 155 miles with a cruise speed of 175 mph.
Chart courtesy of StockCharts.com
ABB Ltd Strengthens Position in U.S. EV Market
In January 2022, ABB announced plans to strengthen its EV position in the U.S. market by taking a controlling stake in InCharge Energy. (Source: “ABB Acquires Controlling Interest in InCharge Energy, Strengthening its EV Charging Solutions in the U.S.” ABB Ltd, January 27, 2022.)
California-based InCharge Energy specializes in EV commercial charging infrastructure in the U.S. and Canada.
ABB initially acquired a 10% stake of InCharge through its investment in a Series A venture capital funding round in 2020. It has since increased its interest to approximately 60%.
As part of the Infrastructure Investment and Jobs Act, the U.S. is expected to allocate $7.5 billion to build out the national network of EV chargers and invest more than $5.0 billion in clean transit buses. Through its majority stake in InCharge Energy, ABB Ltd is ready to lead with this expansion of the country’s charging network.
ABB is also actively expanding its presence in Europe. On April 6, the company announced that it will play a key role in Copenhagen Airport achieving carbon-neutrality by 2030. (Source: “ABB Technology Helps Copenhagen Airport Become Denmark’s Largest EV Charging Site,” ABB Ltd, April 6, 2022.)
Over the next 10 years, ABB will provide 1,350 EV chargers to the airport, which is one of Scandinavia’s busiest ones. Copenhagen Airport will also become the largest site for EV charging in Denmark. The first 180 AC chargers and 15 DC fast chargers will be installed at the airport in 2022.
Solid Cash Flow & Increased Earnings
For the fourth quarter ended December 31, 2021, ABB announced that its revenue increased by five percent year-over-year to $7.6 billion. Its orders went up by 18% to $8.3 billion. (Source: “Q4 2021 Results,” ABB Ltd, February 3, 2022.)
The company’s income from operations soared by 415% year-over-year to $3.0 billion. Its fourth-quarter net income was $2.6 billion, or $1.34 per share, up from a fourth-quarter 2020 net loss of $79.0 million, or $0.04 per share.
ABB Ltd’s cash flow from operating activities in the quarter was $1.0 billion and its cash flow from continuing operations was also $1.0 billion.
Despite supply chain constraints, the company didn’t experience any unusual order cancellations. As a result, it ended the quarter with a large order backlog, up by 16% year-over-year at $16.6 billion.
ABB Ltd’s full-year revenue went up by 11% year-over-year to $28.9 billion, while its full-year orders increased by 20% year-over-year to $31.9 billion.
Its 2021 income from operations jumped by 259% year-over-year to $5.7 billion. Its full-year net income slipped by 12% year-over-year to $4.5 billion, or $2.27 per share, from $5.1 billion, or $2.44 per share, in 2020.
The company’s full-year cash flow from operating activities was $3.3 billion and its cash flow from continuing operations was also $3.3 billion.
Commenting on the results, ABB Ltd’s CEO, Björn Rosengren, said, “2021 was a good year with strong demand, improved profitability, consolidation of our portfolio and strong cash flow.” (Source: Ibid.)
With that cash flow, the company was able to announce a new $3.0-billion share buyback program. It also provided an annual dividend of $0.82, for a yield of 2.8%.
ABB Ltd is a great company that’s been streamlining its operations to focus more on the EV industry. In the fourth quarter, its orders grew by 18% year-over-year, with underlying strength in all of the company’s business areas and regions, and in most of its customer segments.
That momentum is expected to continue in 2022 with steady margin improvement toward ABB Ltd’s 2023 target of at least 15%. Furthermore, the company expects its bottom line to be juiced by positive market momentum and its significant order backlog.
All of this bodes well for ABB stock in 2022 and the coming years.