Johnson Controls (NYSE:JCI) is scheduled to report its Q4 fiscal 2021 results on Friday, Nov 5. We expect Johnson Controls to likely post revenue and earnings in-line with the consensus estimates. A recovery in economic growth will bode well for Johnson Control’s revenue growth, with a pickup in demand for security as well as HVAC products for the residential as well as non-residential market. That said, our forecast indicates that Johnson Control’s valuation is around $75 per share, which is in-line with the current market price of around $74, implying that JCI stock is fully valued at the current levels. Our interactive dashboard analysis on Johnson Controls’ Pre-Earnings has additional details.
(1) Revenues expected to be in-line with the consensus estimates
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Trefis estimates Johnson Control’s FYQ4 2021 revenues to be around $6.4 billion, in-line with the consensus estimate. With over half of the U.S. population now fully vaccinated, the overall demand has picked up, primarily for the residential end-market, and this should bode well for Johnson Controls top-line expansion in the near term. In fact, the company’s FYQ3 2021 revenues grew 19% to $6.3 billion, led by a rebound in Global Products segment. Our dashboard on Johnson Controls Revenues offers more details on the company’s segments.
2) EPS also likely to be slightly above the consensus estimates
Johnson Controls FYQ4 2021 adjusted earnings per share (EPS) is expected to be $0.88 per Trefis analysis, compared to $0.87 as per the consensus estimate. Johnson Controls’ adjusted net income of $598 million in FYQ3 2021 reflected a 19% rise from its $502 million figure in the prior-year quarter. This can primarily be attributed to revenue growth. The company’s margins are expected to improve over the next couple of years, as the company is focused on reducing its COGS, targeting $250 million savings by FY2023. However, inflationary headwinds and supply chain constraints can adversely impact the margin growth in the near term. For the full-fiscal 2021, we expect the adjusted EPS to be higher at $2.66 compared to $2.24 in 2020.
(3) Stock price estimate in-line with the current market price
Going by our Johnson Controls Valuation, with an EPS estimate of around $2.66 and a P/E multiple of around 28x in fiscal 2021, this translates into a price of $75, which is in-line with the current market price of around $74. Although the 28x figure is higher than levels of around 22x and 18x seen in 2019 and 2020, respectively, the multiple can now see an expansion given that the margins are expected to trend higher over the coming years, bolstering the overall bottom-line expansion.
We believe that Johnson Controls is poised to benefit from an economic recovery, with growth in HVAC and security product sales, as well as its margin expansion. However, we believe that these factors are largely priced in the current stock value of $74 per share, in our view, implying there is not much room for growth for JCI stock in the near term. That said, if the company reports upbeat results, with recovery in sales faster than our estimates, and the guidance for the full-fiscal 2022 is above the street estimates, it will result in JCI stock seeing higher levels.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
While JCI stock may be fully valued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for 3M vs. Ingevity.
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