The most recent earnings release ABB Ltd’s (VTX:ABBN) announced in December 2018 showed that the company benefited from a slight tailwind, leading to a single-digit earnings growth of 6.1%. Below is my commentary, albeit very simple and high-level, on how market analysts predict ABB’s earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Market analysts’ consensus outlook for next year seems positive, with earnings rising by a robust 36%. This growth seems to continue into the following year with rates reaching double digit 75% compared to today’s earnings, and finally hitting US$2.6b by 2022.
Even though it’s helpful to be aware of the growth each year relative to today’s level, it may be more insightful to analyze the rate at which the earnings are growing every year, on average. The advantage of this technique is that we can get a bigger picture of the direction of ABB’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I’ve appended a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 18%. This means that, we can anticipate ABB will grow its earnings by 18% every year for the next few years.
For ABB, I’ve compiled three key aspects you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is ABBN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ABBN is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ABBN? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.