I'll attempt to devote 10-15 minutes each day to writing out at least one long/short idea. Probably the quality will not be great given the limited research time, but we'll see how it works out.
ABB is a good company that has gotten way ahead of itself in terms of growth and, more importantly, margins. The company generates 4B CHF in profits a year, and yet only has to spend 700M on Capex. I would believe that (maybe) if ABB was a far and away leader in its core markets, however it's not. In transmission and distribution it is the leading players, however it only has 15-20% share of the market. What's the implication? The products are probably not-so differentiated, and improved profitability is driven by capacity utilization rather than uniqueness. Hence in decreasing capacity utilization times (like recession) profitability will drop.
Quick look at the divisions.
Power Products. High and medium voltage products sold primary to utilities, but also a bit to commercial customers. $9.8B in revenues
Power Systems. Substantions, power converters, advanced cables and systems for power plant control. Division generated $5.8B in revenues in 2007
Automation Products. Switchgears, breakers, switches, generators, wiring, power electronics systems, mostly for industrial clients. $8.6B in revenues.
Process Automation. Process control systems. These can be devices that record/display the temperature or more complex-looking machines with multiple data display functionality. $6.4B
Robotics. The coolest sounding and also the smallest, only $1.4B
Valuation. I think just normalizing the margins to 6-7% (2B EBIT), then applying 10-11x multiple, gives you the intrinsic value of less than half current price. I think in 2009 this baby will start dropping like its hot.
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