Analyst Note| Denise Molina, CFA |
Wide-moat ABB's second-quarter results were full of pandemic-related noise affecting top-line demand, with some markets--China as a country and food and beverage as a sector--showing stable or even growing demand year over year. On the other hand, marine, oil and gas, renewables, automotive, and machine building declined 15% or more year over year. Stepping back, the results reflect the need for broader economic activity to pick up before group-level revenue recovers, as growth markets (China and food and beverage) are just a part of the demand pie and are growing from some temporary effects. China's government stimulus has helped in the second quarter with ABB posting 3% year-over-year growth in that market; however, with around 20% of China's economy dependent on exports and a large portion of those to the United States, economic activity outside China will need to pick up for that 3% growth to be repeatable or improved upon. The food and beverage sector is protected from pandemic-related restrictions as it is deemed essential. However, service to other customers was hampered by restrictions, and the general economic malaise has hurt core demand from machine builders and other end markets that are tightly tagged to GDP growth. We maintain our fair value estimate and see shares as fully priced.