Industrials Week In Review: Johnson Controls, 3M and Caterpillar

During the past week we saw Johnson Controls (NYSE:JCI) reorganize its Building Efficiency segment in a bid to position it for profitable global growth. 3M’s (NYSE:MMM) Listeria monocytogenes test kit received AOAC approval, which indicates that the test kit is better or equivalent to the present standard method. Caterpillar’s (NYSE:CAT) stock continued its downward movement due to negative investor sentiments driven by the declining revenues of its Resource Industries segment.

Johnson Controls reorganizes Building Efficiency business

Johnson Controls recently announced that it will be reorganizing its Building Efficiency segment, which deals with HVAC equipment and controls and facilities management, to better align the division with the company’s long-term strategies. ^[1] The North American branch of the business will now be separated from the global products business and will continue to operate in its present form, providing HVAC systems and solutions to customers in the U.S. and Canada. Johnson Controls has been actively involved in beefing up its Building Efficiency business. During the third quarter fiscal year 2014, Johnson Controls completed its acquisition of Air Distribution Technologies (ADT), which is one of the largest providers of air distribution and ventilation products for buildings in North America. We believe that ADT will provide growth opportunity for Johnson Controls’ Business Efficiency segment by adding new products to its existing HVAC portfolio. In the near term, this acquisition will likely help lift the company’s revenues through cross-selling opportunities.

We currently have a price estimate of $52 for Johnson Controls, approximately 12% higher than its current market price. We estimate revenues of $44.1 billion and EPS of $3.25 for this fiscal year.

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3M’s Listeria monocytogenes test kit receives AOAC approval

3M’s Food Safety business, which makes products that make it faster and easier for food processors to test the microbiological quality of food, recently announced that it’s 3M Molecular Detection Assay Listeria monocytogenes received approval from the Association Of Analytical Communities (AOAC), a non-profit scientific association which publishes standardized chemical analysis methods. ^[2] The test kit provides results in 24 hours, much earlier than the present standard method. 3M’s Food Safety business is a part of its Health Care segment which generates around 17% of the company’s overall revenues.

We currently have a price estimate of $142 for 3M, approximately 3% lower than its current market price. We estimate revenues of $32.34 billion and EPS of $7.39 for this fiscal year.

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Caterpillar’s stock continues to fall

Caterpillar’s stock continued its downward momentum during the week falling 1.18%. On Wednesday, September 17, 2014, Caterpillar was the leading laggard on the Dow Jones Industrial Average with its stock price declining 0.83% to $103.99. Caterpillar was the leading laggard on the DJIA on September 10, 2014 as well. The continued decline in Caterpillar’s stock price is being driven by the suppressed demand from the mining industry which led to a 37.3% year-on-year decline in 2013 for the company’s Resource Industries revenue.

We currently have a price estimate of $109 for Caterpillar, approximately 5% higher than its current market price. We estimate revenues of $55.93 billion and EPS of $6.15 for this fiscal year.

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1. Johnson Controls announces reorganization of its Building Efficiency business to drive improved growth and profitability, September 15, 2014, www.johnsoncontrols.com [↩]
2. 3M Molecular Detection Assay Listeria monocytogenes Earns AOAC PTM Approval, September 18, 2014, www.3m.com [↩]