Johnson Controls (JCI) Last Update 5/6/21
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% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Johnson Controls
STOCK PRICE
DIVISION
% of STOCK PRICE
Buildings
100.0%
$77.24
Net Debt
14.2% $10.99
TOTAL
100%
$77.24
$66.24
Yours
Trefis Price
N/A
$63.76
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Johnson Controls Company

VALUATION HIGHLIGHTS

  1. Buildings constitute 100% of the Trefis price estimate for Johnson Controls's stock.

WHAT HAS CHANGED?


  1. Impact of Coronavirus On Johnson Controls Stock

    Johnson Controls' stock lost almost 43% – dropping from $41 at the beginning of 2020 to below $24 in late March 2020 – then spiked over 2.5x to around $64 now (as of May 5, 2021). That means it is well above the pre-pandemic levels.
    Why? While the Covid-19 outbreak and associated lockdowns resulted in an uncertain outlook for the broader markets, the multi-billion-dollar Fed stimulus announced in late March 2020 helped the markets stage a strong recovery. Over 40% of the U.S. population has already received at least one dose of the vaccine, and investors are now expecting a quicker economic rebound with economies opening up gradually, which will bode well for Johnson Controls' business.

  2. With the economic slowdown, the global real estate market had taken a hit in 2020, both residential and commercial. Johnson Controls provides heating, ventilation, and air-conditioning systems for buildings, among other building solutions and it also saw its sales decline in fiscal 2020.
  3. Q2 Fiscal 2021 Earnings

    Johnson Controls reported a 2.7% growth in revenues, with growth in Asia Pacific, EMEA/LA and Global Products, while North America witnessed a slight decline. The company's adjusted earnings grew 24% to $0.52 per share, led by margin expansion.

  4. Focus on China and other Developing Countries

    Increasing urbanization in the developing world, at a rate of 100,000 people a day, will create major opportunities for the company. By 2025, emerging market cities will contribute to 75% of the global GDP. This will result in over $57 trillion in building investments through 2030. Furthermore, environmental regulations are driving a need for greater energy efficiency. For example, China aims to go "green" reducing its emissions. The Internet of Things (IoT) will be the number one form of connectivity, and growing demand for smart building applications will contribute in the market expansion. These trends will help the company to significantly boost its earnings, with multiple opportunities for strategic growth across the current platforms of the company.

  5. Sale of its Power Solutions segment

    In April 2019, Johnson Controls completed the sale of its Power Solutions business to Brookfield Business Partners L.P. in a cash transaction valued at $13.2 billion. JCI is the largest producer of lead-acid automotive batteries in the world, producing and distributing approximately 154 million lead-acid batteries annually. This segment services both automotive OEMs (Original Equipment Manufacturers) and the battery aftermarket by providing advanced battery technology. The company has been investing heavily in launching new products and has doubled down on the AGM (Absorbent Glass Mat) and EFB (Enhanced Flooded Battery) technologies that power start-stop vehicles, as well as lithium-ion battery technology for certain hybrid and electric vehicles. The sale seems to be the final step in the company's plans to become a pure-play building technologies and solutions provider, following the spin-off of its automotive interiors unit in 2015, its seating division in 2016, the sale of its safety equipment business to 3M last year, and the merger with Tyco in 2016.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are the key drivers of Johnson Controls' value that present opportunities for upside or downside:

Buildings Solutions Asia Pacific

  • Buildings Solutions Asia Pacific Revenue: The Building Solutions Asia Pacific increased substantially from $1.6 billion in FY 2015 to $2.4 billion in FY 2020, due to incremental sales related to the Tyco Merger, higher volumes of equipment and control systems, and higher service volumes. Going forward, we expect the Building Solutions Asia Pacific to grow steadily to around $3.0 billion by the end of our forecast period. However, if the segment sales grow to over $4.5 billion, led by accelerating project installation activity, it will imply a 10% upside to our price estimate for JCI stock.

BUSINESS SUMMARY

Johnson Controls is a global multi-industry company that provides heating, ventilation, and air-conditioning (HVAC), and other mechanical systems for buildings. The company also provides technical services, energy management consulting, and operational support for the entire real estate portfolios in the non-residential buildings market. It also provides industrial refrigeration products.

The company's Buildings segment includes Building Efficiency and the recently acquired Tyco businesses of fire equipment and security services division. Building Efficiency is a global leader in delivering integrated control systems, mechanical equipment, products and services designed to improve the comfort, safety and energy efficiency of non-residential buildings and residential properties with operations in 70 countries. Revenues come from technical services, and the replacement and upgrade of HVAC controls and mechanical equipment in the existing buildings market, where the Company’s large base of current customers leads to repeat business, as well as with installing controls and equipment during the construction of new buildings. Customer relationships often span the entire building lifecycles.

Tyco is a leading global provider of security products and services, fire detection and suppression products and services and life safety products. The business offers a broad portfolio of products and services, sold under well-known brands such as Tyco, SimplexGrinnell, Sensormatic, Wormald, Ansul, Simplex, Scott and ADT (other than in the U.S., Canada and Korea), and serves security, fire detection and suppression and life safety needs across commercial, industrial, retail, small business, institutional and governmental markets, as well as non-U.S. residential markets. Tyco holds market-leading positions in large, fragmented industries and believes it is well positioned to leverage its global footprint, deep industry experience, strong customer relationships and innovative technologies to expand its business in both developed and emerging markets.

KEY TRENDS

Impact of Covid-19 Pandemic

The global spread of coronavirus resulted in lockdowns in various cities across the globe, which affected industrial and economic activity in the first half of 2020. The Covid-19 pandemic is expected to have significant repercussions on the global economy, with slower growth for most of the economies across the globe.

For a company such as Johnson Controls, which primarily provides heating, ventilation, and air-conditioning and mechanical systems among other products and solutions for buildings, it has seen its sales decline. That said, now that several countries have initiated vaccination programs, the economies are expected to rebound, boding well for Johnson Controls' business.

Existing partnerships and distribution channels in major emerging markets will help Johnson Controls exploit the HVAC market opportunities

Emerging markets like China are projected to contribute a major share of growth in the global HVAC market due to increasing income levels, continuing urbanization, and lower current penetration levels of HVAC equipment. China dominates the global HVAC market and accounts for the highest unit sales annually. Johnson Controls' strong presence in China and other major developing markets position the company well to take advantage of these growth opportunities.

Growing residential as well as non-residential construction spending in the developing countries

Residential as well as non-residential construction spending from the developing countries is rising as a large number of people in these countries are moving from rural areas to cities. The growth potential is also huge as the percentage of the population living in cities in the less developed regions of the world (all of Africa, Asia excluding Japan, Latin America, and the Caribbean) is much below the percentage of population living in cities in the developed regions of the world. Even countries such as China and India that have seen more than two decades of high growth have a significant proportion of their populations living in rural areas. China, for instance, still has around 48% of its population living in rural areas, while India has around 68% of its population living in rural areas. In comparison, developed countries such as the U.S., U.K., and Japan have over 80% of their populations living in cities. Thus, in the coming years, as people in these developing countries move from rural areas to cities, large investments in housing, commercial buildings, and other infrastructure will be made. This will provide a large growth opportunity for Johnson Controls' building market businesses.

Growing global trend of energy efficiency

The growing global trend of higher energy efficiency driven by rising energy prices and efforts to slash emissions will benefit Johnson Controls.

Environmental regulations are driving a need for energy efficiency, with 50% of new construction in China expected to be "green" over the next few years. Higher energy efficiency in buildings is a growing demand for the company’s energy-related advisory services. In this space, Johnson Controls’ growth is also helped by the fact that investments by customers in building energy efficiencies are recovered over time through lower operational costs.

Focus on air quality to help sales of HVAC

Homeowners are becoming increasingly aware of air quality issues. Allergies are the 6th biggest cause of chronic illness in the U.S. This awareness will help increase sales of ventilation equipment.