50% Rise In Johnson Controls Stock Possible After COVID-19 Crisis?

by Trefis Team
-14.92%
Downside
42.42
Market
36.09
Trefis
JCI
Johnson Controls
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Johnson Controls’ stock declined by about 33% between March 8, 2020, and March 24, 2020 (vs. a 18% decline in the S&P 500), and the stock is down almost 35% since January 31 after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 26% decline in the S&P 500 since then).

Drawing lessons from the 2008 financial crisis, we see JCI stock declined from levels of around $35 in October 2007 (the pre-crisis peak) to levels of around $16 in March 2009 (as the markets bottomed out), implying JCI stock lost as much as 54% from its approximate pre-crisis peak. This marked an in-line drop with the broader S&P, which fell by as much as 51%.

Will Johnson Controls stock recover similarly from the coronavirus spread?

We compare the performance of Johnson Controls vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: Johnson Controls Stock Compared With S&P 500

  • In fact, JCI recovered strongly post the 2008 crisis, to levels of about $29 in early 2010, rising by 82% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
  • Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 30% after Saudi Arabia increased production.

Rationale Behind Stock Decline

  • Industrial companies’ stocks generally move in tandem with the broader market trend and economic growth trends.
  • With the economic slowdown, the global real estate market is expected to take a hit in 2020, both residential and commercial.
  • Johnson Controls provides heating, ventilation, and air-conditioning systems for buildings.
  • With the real estate market expected to take a hit, Johnson Controls will likely see lower shipments, thereby putting pressure on the company’s top line in 2020, which explains the sharp drop in its stock price.
  • We believe JCI’s fiscal Q2 and Q3 results will confirm this reality with drop in revenues.
  • If signs of coronavirus containment aren’t clear by the fiscal Q2 earnings timeframe, it’s likely JCI’s stock along with the broader market is going to see continued drop when results confirm palpable reality.

Conclusion

While JCI stock has declined due to the coronavirus and oil price war crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly and potentially outperform as the crisis winds down. Based on 2008 crisis comparison, JCI stock could potentially see an upside of 50% post the current crisis.

What about timing?

Potential for 50% gains in JCI stock, and its timing, hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture, and complements our analyses of Coronavirus impact on a diverse set of industrial companies, including Corning, Honeywell and 3M. The complete set of coronavirus impact and timing analyses is available here.

 

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