Industrials Week In Review: Johnson Controls, Caterpillar and Honeywell

Industrials such as Johnson Controls (NYSE:JCI), Caterpillar (NYSE: CAT) and Honeywell (NYSE:HON) have had a very busy week. Johnson Control announced that it is looking to divest from its facilities management business. Honeywell released its forecast for sales of Turbocharged vehicles and Caterpillar announced that it will be increasing the price of its products early next year.

Johnson Controls to sell Global Workplace Solutions segment

Johnson Controls announced that it will soon be selling off its facilities management service, Global Workplace Solutions, in order to position itself as a manufacturer rather than a service provider. ^[1] Though this decision will lead to a decline in revenues by around 10.0%, the company will stand to benefit from an improvement in margins. As per our calculations, the Global Workplace Solutions has an EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) of 3.6%, significantly lower than other businesses within the Building Efficiency segment.

Johnson Controls’ stock declined 0.73% over the week through Thursday, to reach $44.68. On average, the stock traded on a volume 2.84 million shares. The stock has traded at a 52-week high of $52.5 and low of $39.42.

We currently have a price estimate of $52 for Johnson Controls, approximately 16% higher than its current market price. We estimate revenues of $44.1 billion and EPS of $3.25 for this fiscal year 2014, in line with consensus estimates.

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Caterpillar announces price increase

On September 30, 2014, Caterpillar filed an 8-K advising a 0-2% increase in prices of its products, which will be effective from January 2015. ^[2] The price increase, which also includes changes to list prices and merchandising support, will vary depending on product and regional mix.

Caterpillar’s stock declined 2.96% over the week through Thursday, to reach $97.41. On average, the stock traded on a volume 4.74 million shares. The stock has traded at a 52-week high of $111.46 and low of $81.87.

We currently have a price estimate of $109 for Caterpillar, approximately 12% higher than its current market price. We estimate revenues of $55.93 billion, compared to consensus estimate of $55.12 billion, and EPS of $6.15 for the fiscal year 2014, compared to consensus estimate of $6.28.

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Honeywell reports Turbocharger outlook

Honeywell released its forecast for turbochargers, projecting 49 million turbocharged vehicle sales per year by 2019, generating $12 billion in revenues. ^[3] The growth in sales of turbocharged vehicles, which will be led by China, will be driven by the requirement to meet emissions regulations and increase vehicle efficiency.

On September 29, 2014, Honeywell announced that it had signed a licensing agreement with Tata Power’s Strategic Engineering Division, a supplier of defense systems to the Indian Ministry of Defense, allowing it produce Honeywell’s patented navigation technology, which can operate even in the absence of GPS satellite guidance. ^[4] This technology, known as Tactical Advanced Land Inertial Navigator, will help increase troop safety leading to mission success.

On October 1, 2014, Honeywell announced that its UOP/Eni Ecofining™ process technology will be used by Emerald Biofuels to produce renewable diesel for the U.S. military. ^[5] Emerald is supported by a $70 million contract with the U.S. Department of Defense, which under its project, Advanced Drop-in Biofuels Production Project, aims to create economically viable production capacity for advanced drop-in biofuels.

Honeywell’s stock declined 2.37% over the week through Thursday, to reach $91.12. On average, the stock traded on a volume 2.31 million shares. The stock has traded at a 52-week high of $98.09 and low of $81.04.

We currently have a price estimate of $107 for Honeywell, approximately 18% higher than its current market price. We estimate revenues of $40.44 billion and EPS of $5.62 for this fiscal year, in line with consensus estimates.

Click here to see our complete analysis of Honeywell

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1. Johnson Controls Plans to Sell Building-Management Business, September 30, 2014, online.wsj.com [↩]
2. Caterpillar’s 8-K SEC Filing, September 30, 2014, www.sec.gov [↩]
3. Honeywell Global Turbo Forecast Projects 49 Million Turbocharged Vehicle Sales Per Year By 2019, September 29 2014, www.honeywell.com [↩]
4. Honeywell And Tata Power SED Sign Landmark Agreement For India’s Defense Industry, September 29 2014, www.honeywell.com [↩]
5. Technology From Honeywell’s UOP To Be Used To Produce Renewable Diesel For U.S. Military, October 1, 2014, www.honeywell.com [↩]