Should You Buy Johnson Controls Stock At $70?

+25.96%
Upside
50.80
Market
64.00
Trefis
JCI: Johnson Controls logo
JCI
Johnson Controls

[Updated: Feb 4, 2022] JCI Stock Decline

The stock price of Johnson Controls (NYSE: JCI) has seen a fall of 3% over the last week, while it is down 14% in a month. The company recently reported its Q1 FY22 results, which were in line with our forecasts. Johnson Controls’ revenue of $5.9 billion reflected a 10% y-o-y growth, while its bottom-line of $0.54 per share improved 26%. The sales growth was driven by its global products business led by higher HVAC sales. Looking forward, the company guided for high single-digit revenue growth in Q2, along with margin expansion, resulting in expected EPS to be in the range of $0.62 and $0.64, reflecting a growth of 19% to 23%. Overall, it was a good quarter for Johnson Controls but this didn’t reflect on its stock.

Now, JCI stock has been weighed down by rising concerns over increased raw material costs and its impact on the company’s margin growth. For now, the selling appears to be overdone in our view, given that the company expects net margin to continue to expand going forward, with better price realization. We now estimate Johnson Controls Valuation to be $89 per share (vs. $83 earlier), which is 29% above the current market price of $69. This represents a P/E multiple of a little under 27x based on expected EPS of $3.31 for Johnson Controls in 2022.

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But what about the near term?

Given that JCI stock has seen a decline of 14% in a month, will it continue its downward trajectory, or is a rise imminent? Going by historical performance, there is a strong chance of a rise in JCI stock over the next monthOut of 25 instances in the last ten years that JCI stock saw a twenty-one-day fall of 14% or more, 21 of them resulted in JCI stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 21 out of 25, or a solid 84% chance of a rise in JCI stock over the coming month, implying that JCI stock is a good bet at its current levels, even for the short term, in our view. See our analysis on Johnson Controls Stock Chance of A Rise for more details.

 

[Updated: Jan 31, 2022] Johnson Controls Q1 FY22 Earnings Preview

Johnson Controls (NYSE:JCI) is scheduled to report its Q1 fiscal 2022 results on Wednesday, Feb 2. We expect Johnson Controls stock to move higher in the near term with revenue and earnings likely falling above the consensus estimates. A recovery in economic growth will bode well for Johnson Controls’ revenue growth, with a pickup in demand for security as well as HVAC products for the residential as well as non-residential market. Not only do we expect the company to post upbeat results, we find its stock to have more room for growth, as we discuss in the below sections. Our interactive dashboard analysis on Johnson Controls’ Earnings Preview has additional details.

(1) Revenues expected to be marginally above the consensus estimates

  • Trefis estimates Johnson Controls’ FYQ1 2022 revenues to be around $5.9 billion, marginally above the $5.8 billion consensus estimate.
  • With The U.S. economy growing at a strong 6.9% annual rate in Q4 [1], the sales for Johnson Controls’ products are anticipated to grow in low double-digits y-o-y.
  • However, the rise of Omicron may have impacted the non-residential construction since December, weighing on the overall sales growth for Johnson Controls in Q1 and Q2.
  • Looking back at Q4, Johnson Controls reported a 7% rise in top-line to $6.4 billion, led by a 10% rise in global products as well as its sales in Asia Pacific, while other geographies saw mid-single digit growth.
  • 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 FYQ1 2022 adjusted earnings per share (EPS) is expected to be $0.54 per Trefis analysis, just a cent above the consensus estimate of $0.53.
  • Johnson Controls’ adjusted net income of $628 million in FYQ4 2021 reflected a 12% rise from its $563 million figure in the prior-year quarter. This can primarily be attributed to revenue growth as well as a 37 bps expansion of net margin.
  • However, inflationary headwinds and supply chain constraints can adversely impact the margin growth in the near term.
  • Looking forward, for the full-fiscal 2022, we expect the adjusted EPS to be higher at $3.32, compared to $2.24 in fiscal 2020, and $2.65 in fiscal 2021.

(3) JCI stock has more room for growth

  • We estimate Johnson Controls Valuation to be $83 per share, which is 15% above the current market price of $72.
  • This represents a P/EBITDA of 17.5x based on Johnson Controls EBITDA for the last twelve months.
  • Now, if the company reports upbeat results, with sales growth as well as 2022 guidance better than the street estimates, it is likely that the P/EBITDA multiple will be revised upward, resulting in even higher levels for JCI stock.

While JCI stock is worth considering for more gains, it is helpful to see how its peers stack up. Check out how Johnson Controls Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

 Returns Feb 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 JCI Return -5% -15% 67%
 S&P 500 Return -1% -6% 100%
 Trefis MS Portfolio Return -2% -11% 249%

[1] Month-to-date and year-to-date as of 2/4/2022
[2] Cumulative total returns since the end of 2016

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Notes:
  1. U.S. Economy Grows as Fourth-Quarter GDP Shows Strongest Year in Decades, Josh Mitchell, The Wall Street Journal, Jan 27, 2022 []