Johnson Controls stock (NYSE: JCI) has seen an 18% fall this year, compared to a 16% fall for the broader S&P500 index. However, in the longer term, JCI stock is up around 145% from levels seen in late 2018, significantly outperforming the S&P 500 index, up about 65%.
This 145% growth for JCI stock since late 2018 can primarily be attributed to 1. Johnson Controls’ earnings, which rose 87.9% to $3.00 in fiscal 2022 (fiscal ends in Sep), compared to $1.59 in 2018, on a per share and adjusted basis, and 2. the company’s P/E ratio, which rose 30.7% to 22x currently, from 17x in 2018. The strong earnings growth above can be attributed to net margin expansion, higher revenues, and a decline in total shares, as discussed below.
Johnson Controls’ revenue grew 8.1% to $25.3 billion in 2022, compared to $23.4 billion in 2018, driven by higher demand for HVAC products. The company faced headwinds in 2020 due to the impact of the pandemic. However, it has seen a rebound in building products and solutions demand over the last couple of years. This, clubbed with better price realization for its HVAC products has bolstered its top-line growth. Not only did Johnson Controls grow its revenue, but its adjusted net margins also expanded about 190 bps to 8.3% in 2022, vs. 6.4% in 2018. While the strong demand and pricing environment will aid its near-term margins, rising costs and forex headwinds may impact the overall bottom-line growth.
The company spent around $11 billion on share repurchases since early 2019, resulting in a 24.9% decline in total shares outstanding to 700 million in 2022, compared to 932 million in 2018. This clubbed with margin expansion, has been the key driver for Johnson Controls’ earnings growth since 2018.
Looking at valuation, JCI stock looks fully priced. At its current level of $67, JCI is trading at a 19x forward earnings estimate of $3.60, per Trefis analysis, aligning with its last four-year average of 19x. This implies that JCI stock is appropriately priced, and investors willing to wait for a dip to enter it are likely to see better gains in the long term. Our Johnson Controls Valuation dashboard has more details.
While JCI stock looks fully priced, it is helpful to see how Johnson Controls’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Vicor vs. ACM Research.
|S&P 500 Return||-1%||-16%||80%|
|Trefis Multi-Strategy Portfolio||0%||-18%||231%|
 Month-to-date and year-to-date as of 12/14/2022
 Cumulative total returns since the end of 2016