Citi upgrades ABB to “buy” on margin upside, higher growth outlook

Investing.com -- Citi Research has upgraded ABB (SIX:ABBN) to “buy” from “neutral,” raising its target price to CHF62 from CHF46, in a note dated Monday. 

The call reflects expectations of stronger organic growth, rising margins, and higher capital returns, driven by portfolio changes and structural end-market demand.

Citi analysts cited ABB’s improved margin outlook as a key catalyst. ABB (ST:ABB) reported an 18.1% group margin for 2024, which would have reached 19.8% excluding the Robotics and e-Mobility units.

With the Robotics division set to be spun off in 2026 and the e-Mobility IPO paused, Citi expects margins for the remaining business (“Remainco”) could increase to a range of 18–21%.

Growth forecasts have also been raised. ABB’s current through-cycle organic sales growth target of 5-7% is likely to rise to 6-8%, supported by momentum in key Electrification markets. 

This division now accounts for over 50% of ABB’s revenue, with approximately one-third of its sales, driven by datacenters, utility distribution, renewables, and conventional power, seen as capable of delivering double-digit percentage revenue growth.

Return on capital employed has exceeded ABB’s >18% target, reaching above 22% in 2024. Citi sees potential to raise the target to >20% for Remainco. 

A stronger capital structure also supports this outlook, with ABB’s net debt forecast to fall close to zero by 2026. Even assuming a spin of Robotics at 1x EBITDA, the balance sheet could support roughly $7 billion in further deployment capacity.

On earnings, Citi lifted its 2025 organic growth forecast from 4% to 5% and raised 2026 from 4% to 6%. 

Operational EBITA is projected at $7.2 billion in 2026, reflecting a 19.4% margin. That compares to consensus estimates of $7.15 billion and 19.3%, respectively.

Despite concerns about margin sustainability in medium voltage products, Citi argues those fears are overstated. 

Medium voltage accounts for under 20% of Electrification sales, with price increases since 2022 reflecting supply-demand imbalances. Growth in smart power and datacenters is expected to offset any normalization in pricing.

ABB’s Electrification backlog is at a record high relative to sales, and the book-to-bill ratio remains above 1.05x, supporting continued growth. 

Citi’s sum-of-the-parts valuation assigns an 18.8x EV/EBITA multiple to the Remainco business, which it sees as justified by higher ROCE and improved profitability.