ABB (SWX:ABBN) Margin Expansion Reinforces Bullish Narrative Despite Slower Earnings Growth

ABB (SWX:ABBN) posted net profit margins of 12.5%, up from last year’s 11.8%, and has delivered average annual earnings growth of 22% over the past five years. However, the most recent year-over-year earnings growth trimmed to 9.8%, with future earnings now forecast to rise at 6.99% per year, which is notably trailing the Swiss market’s 10.8% average growth outlook. While investors can point to ABB’s strong ongoing profit and revenue growth as key rewards, the combination of moderating growth rates and elevated valuation may temper sentiment as they weigh the company’s recent earnings performance.

See our full analysis for ABB.

Next, we’ll size up these headline results against the prevailing narratives for ABB to see which themes the latest numbers confirm and where surprises might emerge.

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Margin Expansion Signals Resilience

• ABB's net profit margin reached 12.5%, up from last year’s 11.8%. This demonstrates that the company is not just growing, but also making more profit from every franc of sales.
• Analysts' consensus view connects the stronger margin performance to recurring service revenues, order backlog, and product innovation. These factors are helping ABB withstand competitive and macroeconomic pressures.
  • Consensus narrative notes that multi-year service contracts and embedded digital solutions (such as ABB Ability™) are driving persistent profitability, even as competition increases in robotics and emerging markets.
  • Revenue visibility from a record $25 billion order backlog provides clear support for future margin stability. This reinforces the idea that these margin gains are sustainable rather than a one-off result.

Catch why analysts say these margins could hold up. Discover what could challenge the consensus in the full narrative. 📊 Read the full ABB Consensus Narrative.

Valuation: Premium to Fair Value

• ABB trades at a price-to-earnings ratio of 32.4x, which is notably above both its peer average (29.8x) and the European Electrical industry average (23.4x). The current share price is CHF59.18, compared to a DCF fair value of CHF48.04.
• Analysts' consensus view points out that this valuation gap is justified mainly by ABB’s pipeline of revenue growth and margin improvement. However, there is tension since the analyst consensus price target (CHF52.85) is actually below the current share price.
  • Market expectations for further profit margin gains (to 14% in three years) are factored into today’s high multiple. Any shortfall in the pace of innovation or order book delivery could leave shares vulnerable.
  • The small 4.8% difference between the share price and the analyst price target suggests that most of ABB’s optimism is already reflected in the stock, so upside may be limited if consensus numbers materialize as expected.

Order Backlog Underpins Growth Story

• ABB is supported by a record-high $25 billion order backlog, driven by structural demand for electrification, automation, and grid upgrades, as highlighted in the consensus analyst narrative.
• Analysts' consensus view credits this large forward order book with providing strong earnings and cash flow visibility over the next several years.
  • Recurring revenue streams and multi-year contracts offer an effective buffer against swings in end-market demand, making ABB’s future growth less dependent on unpredictable new orders each quarter.
  • The consensus also highlights risks. Periods of weakness in key markets (such as Chinese residential or European industrials) or deflationary pressures could still affect some growth expectations despite the backlog.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for ABB on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A great starting point for your ABB research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

See What Else Is Out There

ABB’s lofty valuation, with the share price exceeding analyst targets, suggests investors may face limited upside unless growth outpaces already high expectations.

If you prefer stocks where the price still offers genuine room for value gains, check out these 877 undervalued stocks based on cash flows to spot opportunities overlooked by the market right now.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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