Earnings Beat In Cards For Johnson Controls?

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Johnson Controls

Johnson Controls (NYSE: JCI) is scheduled to report its Q4 fiscal 2022 results on Friday, November 4. We expect Johnson Controls stock to move higher in the near term, with revenue falling in line and earnings likely falling above the consensus estimates. Strong demand trends and better price realization for its HVAC products should drive the company’s performance in Q4. Although we expect the company to post upbeat earnings, we find its stock to have only a little room for growth, as discussed below. Our interactive dashboard analysis on Johnson Controls’ Earnings Preview has additional details.

(1) Revenues expected to align with the consensus estimates

  • Trefis estimates Johnson Controls’ FYQ4 2022 revenues to be around $6.8 billion, reflecting a mid-single-digit y-o-y rise and in line with the consensus estimate.
  • The company has guided for high single-digit organic revenue growth in Q4. This will likely be driven by better price realization for its HVAC products, primarily in North America, a trend seen in the recent past.
  • Looking back at Q3, Johnson Controls reported a 4% rise in top-line to $6.6 billion, led by higher sales for its global products as well as its sales in North America, while other geographies saw a decline in sales.
  • Our dashboard on Johnson Controls Revenues offers more details on the company’s segments.
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(2) EPS likely to be above the consensus estimates

  • Johnson Controls FYQ4 2022 adjusted earnings per share (EPS) is expected to be $1.03 per Trefis analysis, comfortably above the $0.98 consensus estimate and higher than the company’s provided outlook of $0.98 (at the mid-point of the range). This compares with the $0.88 the company reported in the prior-year quarter.
  • Johnson Controls’ adjusted net income of $594 million in FYQ3 2022 reflected a modest 0.7% decline from its $598 million figure in the prior-year quarter. This can primarily be attributed to a 120 bps decline in EBIT margin, which is more than revenue growth.
  • However, the company expects around 50 bps improvement in segment margin in Q4, likely bolstering its earnings growth.
  • Looking forward, for the full-fiscal 2023, we expect the adjusted EPS to be higher at $3.50, compared to $2.65 in fiscal 2021 and an estimated $3.00 in fiscal 2022.

(3) JCI stock has only a little room for growth

  • We estimate Johnson Controls Valuation to be $64 per share, which is just 9% above the current market price of $59.
  • At its current levels, JCI stock is trading at 20x its expected $3.00 EPS for fiscal 2022, compared to the last three-year average of 21x, implying only a little room for growth.
  • However, if the company reports upbeat results, with sales growth and fiscal 2023 guidance better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for JCI stock.

While JCI stock has only a little room for growth, it is helpful to see how its peers stack up. Check out how Johnson Controls Peers fares on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis and recent market volatility have created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised by how counter-intuitive the stock valuation is for Novanta vs. Abbott.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Oct 2022
MTD [1]
YTD [1]
Total [2]
 JCI Return 19% -28% 43%
 S&P 500 Return 9% -18% 74%
 Trefis Multi-Strategy Portfolio 7% -22% 211%

[1] Month-to-date and year-to-date as of 10/31/2022
[2] Cumulative total returns since the end of 2016

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