What’s Next For Johnson Controls Stock After An Upbeat Q2?

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Johnson Controls

Johnson Controls stock (NYSE: JCI) is up 12% in a month, outperforming the broader markets, with the S&P500 up just 0.2%. The company posted upbeat Q2 results last week, and despite its recent rise, we think it has more room for growth, as discussed below.

Johnson Controls’ revenues were up 10% to $6.7 billion in fiscal Q2’23 (fiscal ends in September), compared to our forecast of $6.6 billion. This growth was driven by a 13% rise in North America sales and an 8% rise in Global Products segment sales. This can be attributed to better price realization and strong demand trends for its commercial HVAC and fire and safety products.

The company’s adjusted EBIT margins improved by 70 bps to 10.7%. Its GAAP operating margin rose 160 bps to 9.9% in Q2’23.  The earnings of $0.75 on a per share and adjusted basis were up 19% from $0.63 in the prior-year quarter, and this compares with our estimate of $0.74. The rise in earnings can be attributed to higher sales and improved operating margins.

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Not only did JCI post upbeat Q2 results, but it also slightly raised its full-year outlook. It now expects its organic sales to rise 10% for the full-fiscal 2023, compared to its prior guidance of high single-digit to low double digits growth. It also narrowed its earnings outlook to be between $3.50 and $3.60 on a per-share and adjusted basis, vs. its prior view of $3.30 to $3.60. This can be attributed to a robust demand environment for HVAC products and a healthy margin expansion seen in recent quarters. This boded well with investors, as evident from the stock price appreciation.

Looking at the stock price, we estimate Johnson Controls Valuation to be $71 per share, about 13% above the current market price of $63. At its current levels, JCI stock is trading at a little under 18x its expected forward earnings of $3.57 on a per share and adjusted basis for full-fiscal 2023, compared to the last five-year average of 20x, implying that it has some room for growth.

While JCI stock looks like it can see higher levels, 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.

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 May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 JCI Return 5% -2% 53%
 S&P 500 Return -1% 7% 84%
 Trefis Multi-Strategy Portfolio -1% 7% 238%

[1] Month-to-date and year-to-date as of 5/10/2023
[2] Cumulative total returns since the end of 2016

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