ABB's Beat Keeps Us Bullish on These 3 Holdings as We Eye New Target Price for One
Electrification remains a pain point as data center construction continues and this Pro Portfolio name is about to report after blowing past its previous target price.
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Our shares of Eaton Corp. ETN chugged higher yesterday following competitor ABB Ltd. ABB posting strong quarterly results. The company benefited from AI and data center build-outs.
The report marked ABB’s highest quarterly order intake, up 16% to $9.8 billion, with data-center related orders up double-digits year over year. During its earnings call, ABB shared that it has a strong pipeline for its "electrification" business, and it sees a long-term trend of higher electrical grid investments to keep up with the electrification trends that we are seeing all around the world. Data center is a key part of that. But as we’ve discussed, other drivers include the electrification of transportation and buildings, manufacturing expansion, and population growth.
Rounding out those comments from ABB, we are also reading that the boom in data center construction has pushed U.S. contractor order backlogs up to an average of 8.7 months in June. That’s according to the Associated Builders and Contractors’ (ABC) Construction Backlog Indicator and Construction Confidence Index. The June findings bring with them a very eye-opening statistic -- one in seven ABC members is currently under contract to perform work on a data center. That’s a level of activity that keeps us bullish on our position in not only ETN shares, but those for United Rentals URI and Vulcan Materials VMC as well.
Our near-term plan with Eaton shares
Sticking with ETN, the share price strength has led them to become the Portfolio’s largest holding at around 4.3%. As they approach the 4.5% level, we will be mindful of our portfolio discipline, but as we head further into the June-ending quarter earnings season, we are more inclined to let this winner run a bit further. But should we see the relative strength index (RSI) level for ETN shares push considerably into overbought territory, the prudent move would be to convert a slice of that share price move into gains for the Portfolio and members.
Our United Rentals price target
And given our comment about United Rentals above, we acknowledge URI shares have moved past our $800 price target. Clearly, the company will benefit from improving construction activity tied to data centers and other drivers, and our plan is to revisit our price target after the company reports its quarterly results next week on Thursday, July 24. We have seen some price target moves across Wall Street to $865-$920, but we would need to see more upside than that to warrant revising our Two rating.
The Pro Portfolio is long URI, ETN, VMC.
