ABB India Downgraded To 'Neutral' Citing Strong Rally, Limited Room For Rerating: UBS
However, the brokerage has increased the stock's target price to Rs 9,100 apiece from Rs 8,830 apiece earlier, citing optimism over the company's earnings quality.
UBS downgraded ABB India Ltd. to 'neutral' from 'buy', citing limited room for valuation rerating following the recent strong rally.
The stock also appears overpriced by more than 30% of its compounded earnings growth, given that it is trading at 75 times its 2026 estimated earnings per share, the brokerage said.
However, the brokerage is optimistic about earnings quality and maintains its above-consensus earnings estimates of 9% and 14% higher for fiscal 2024 and fiscal 2025, respectively. They believe the stock's current valuations reflect upside earnings. In the electrification portfolio, UBS also finds scope for better margins, whereas in industrial revenue, they think material upside to profitability appears unlikely.
This has led the brokerage to increase the stock's target price to Rs 9,100 apiece from Rs 8,830 apiece earlier.
Two factors would make UBS positive and provide an upgrade to ABB. A quarterly order run-rate beyond Rs 3,800 crore comes from mobility or higher base order growth, driving better earnings growth. A robust margin in the emerging portfolio of electrification is driving ABB's margins higher than expected.
While the brokerage maintains their consensus-leading estimates on superior margins, they downgrade the stock to neutral and roll forward earnings with a revised price target of Rs 9,100 based on 75 times of its 12-month forward PE. For their fiscal 2024/2025 new order estimates, ABB needs to sustain a quarterly order intake run rate of around Rs 40 billion or Rs 48 billion, which suggests a greater share of mobility and larger inflows from process automation.
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Shares of the company fell as much as 3.16% to Rs 8,191 apiece. It currently trading at 3% lower at Rs 8204.45 apiece as of 12:07 p.m. This compares to a 0.75% advance in the NSE Nifty 50 Index.
The stock has risen 81.18% in the last 12 months and 75.54% year-to-date. The relative strength index was at 44.46.
Twelve out of the 29 analysts tracking the company have a 'buy' rating, nine recommend a 'hold,' and eight suggest a 'sell,' according to Bloomberg data. The average 12-month consensus price target implies a downside of 5.1%.
