Johnson Controls’ Stock Is Worth $38 On Core Business Outlook

Johnson Control has indicated that it expects modest growth for the rest of the year after delivering average earnings. The company has cited the present macro environment as a mixture of opportunities and challenges, which it expects to make the most of by increasing its market share and cutting costs in its various businesses. The company expects its third quarter earnings to increase by approximately 20% compared to the corresponding prior year quarter while fourth quarter earnings are expected to increase by 25%. Johnson Controls principally competes with other automotive battery manufacturers like Exide Industries (NYSE:XIDE) and Magna International (NYSE:MGA). We currently have a Trefis price estimate of $38 for Johnson Control’s Stock, around 20% above the current market price.

See our full analysis of the Johnson Controls stock here

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Automotive

The company’s automotive division results are expected to be boosted by higher North American production rates of the auto industry. Johnson Controls is looking to increase automotive margins via seating metals strategy and core product portfolio / standardization along with gaining market leadership in the emerging markets. The next half of the year should be good for the company as the season in second half has traditionally been good for sales of this segment. Also, last year the company’s results were negatively affected by the Japanese tsunami, a factor that will be missing this year.

Building Efficiency

Johnson Controls aims to increase its market share in this segment by helping customers improve energy efficiency and reduce their greenhouse gas footprint. The company is actively cutting its SG&A costs and increasing price and performance in the services business to achieve its growth objectives for this division. Seasonality is again expected to be in favor of the company as traditionally sales in the second half of the year for this sector have been better than those in the first half.

Power Solutions

Johnson Controls is following the twin strategy of pricing increase and vertical integration to achieve cost savings in a bid to increase its margins. There are also expected to be cost savings through reduction in the battery imports to serve Chinese customers. The company is investing heavily in the AGM battery technology to support customer demand for start stop vehicles. It is also looking for driving margins through vertical integration in the SLI batteries, a market in which it enjoys considerable strength.

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