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ABB Set to Expand Globally with GE Industrial Acquisition

Zacks Equity Research

In a bid to strengthen global position in electrification, Swiss engineering behemoth, ABB Ltd ABB recently announced that it has agreed to acquire GE Industrial Solutions, General Electric Company’s (GE) global electrification solutions business. The value of the deal, which is expected to concludein the first half of next year, is worth $2.6 billion.

The company already has a strong presence in global electrification business and believes this buyout will enable it to expand access to the North American market. This acquisition will allow ABB’s Electrification Products (EP) division to integrate GE Industrial Solutions, resulting in a unique global portfolio and a complete offering for North American as well as global customers.

Buyout to Strengthen Electrification Business

Based in Atlanta, GA, GE Industrial Solutions is the designer of electrical solutions at the crossroads of digital and industrial — equipped to control electricity from grid to its point of use. GE Industrial Solutions, which employs about 13,500 employees, has a stronghold in more than 100 countries with deep customer relationships.

The acquisition will establish a long-term strategic supply relationship for GE Industrial Solutions as well as ABB products that GE sources currently. Moreover, ABB’s innovative technologies as well as ABB Ability digital offering along with GE Industrial Solutions’ complementary solutions will offer a very comprehensive offering to North American customers.

Our Take

ABB is one of the best managed industrial infrastructure, power and automation companies in the world that stands to benefit from investments made in the upgrade of power infrastructure. Year to date, the Zacks Rank #3 (Hold) company’s shares have returned 17%, outperforming the industry’s averagegainof 13.4%.

Recently, the company closed the acquisition of B&R, which will bridge the gap in machine and factory automation, while also generating tremendous operational synergies. Further, ABB acquired data transmission business of the KEYMILE Groupin July. This buyout is expected to expand communication networks business footprint in the industrial, transportation and infrastructure domains.

Headwind

However, the company’s exposure to oil and gas markets makes it susceptible to current price volatility in the market. Moreover, itsorder level in certain business segments has been hurt in recent times due on weak oil and gas demand. Further, the company’s financials is likely to be hurt by lower capital spending for the company’s key upstream energy end-markets.

Stocks to Consider

Some better-ranked stocks from the same space are Columbus McKinnon Corporation CMCO, AGCO Corporation AGCO and Barnes Group, Inc. B. While Columbus McKinnon sports a Zacks Rank #1 (Strong Buy), AGCO and Barnes Group carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Columbus McKinnon managed to beat estimates twice in the trailing four quarters, at an average earnings surprise of 10.7%.

AGCO has an average positive earnings surprise of 39.7% in the trailing four quarters, having surpassed estimates all through.

Barnes Group has an average positive earnings surprise of 11.6% in the trailing four quarters, having surpassed estimates each time.

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