ABB to Keep Power Grids Unit; Plans New $3 Billion Share Buyback
Swiss power and automation technology company ABB, Ltd (NYSE: ABB – $22.77) said it has decided to keep its power grids unit and unveiled plans for a new $3 billion share buyback plan to run from 2017 through 2019. The company said it made the decision to keep its power grids business after considering other ownership options such as a sale, spin-off or joint venture, despite overtures by activists to exit the business. The company said key factors in the decision to retain the power grids unit included market attractiveness, existing and future product offerings, business model opportunities and best ownership and alternative value-creation options for ABB shareholders. The company went on to say it is raising the operational EBITA margin target corridor for the power grids division from 8%-12% to 10%-14%, effective 2018. ABB also confirmed its revenue growth target of 3%-6% for the company as a whole for the years 2015-2020.
In other news, ABB is planning to partner with Microsoft to develop one of the world’s largest industrial cloud platforms. Under the strategic partnership, Microsoft’s Azure cloud will be combined with ABB’s integrated connectivity platform to help improve customers’ productivity by increasing uptime, speed and yield. ABB also formed a global strategic alliance for the execution of large turnkey engineering, procurement, construction (EPC) electrical substation projects with Fluor Corp. Under the partnership, ABB will combine its technology in power transmission and distribution with Fluor’s expertise and experience in delivering large EPC projects to meet the needs of power grids across the world for safe, reliable and state-of-the-art electrical substations.
Shares of ABB, up 26% this past year, are again testing their 52-week high of $22.88 set last month. The company appears to have solid sales and earnings growth potential over the next three to five years. Hence, I believe positions have strong appreciation as well as above-average total return potential out to late decade with its handsome dividend yielding 3.3%.