Below are the key drivers of Johnson Controls' value that present opportunities for upside or downside:
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 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.
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. This led to a significant impact on the overall demand 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 undertaken large scale vaccination programs, the economies are expected to rebound, boding well for Johnson Controls' business.
That said, Covid-19 is proving more difficult to deal with, given the spread of new variants. Delta variant disrupted the economic growth in the middle of 2021, and now the Omicron is feared to further disrupt the economic growth in early 2022.
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.
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.
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.
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.