ABB Earnings: Operating Margins Reap the Rewards of Previous Cost Initiatives; Raising Our FVE

Wide-moat ABB delivered EBITA margin expansion of 160 basis points to 17.9% during the first quarter, smashing company-compiled consensus by 110 basis points and sending shares 6% higher. Strict cost-control has been a feature under Bjorn Rosengren’s tenure, with the added benefit to profitability from higher selling prices. The strong first quarter provided management confidence to raise its full-year EBITA margin to approximately 18%, a slight improvement from the 17% achieved in fiscal 2023. We raise our fair value estimate to CHF 40.5 from CHF 36.5 to account for its EBITA margin uplift and the strengthening of the USD against the CHF. We believe the foundation of a better operational business has been set, which will allow the firm to maximize its operating leverage from the several long-term structural growth drivers it enjoys.