What’s Next For Johnson Controls Stock After An 8% Fall Yesterday?

JCI: Johnson Controls logo
Johnson Controls

Johnson Controls stock (NYSE: JCI) dropped 8% in yesterday’s trading session after an in-line Q3 performance and lower guidance. However, we believe that the selling in JCI is overdone, and investors will likely be better off buying this dip for solid gains in the long run.  Johnson Controls’ revenues were up 8% to $7.1 billion in fiscal Q3’23 (fiscal ends in September), compared to our forecast of $7.2 billion. This growth was driven by a 10% rise in North America and EMEA/LA sales, an 11% rise in Asia Pacific, and a 5% growth 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 160 bps to 13.8%. Its GAAP operating margin rose 380 bps to 12.2% in Q3’23, aided by better price realization. The earnings of $1.03 on a per share and adjusted basis were up 21% from $0.85 in the prior-year quarter, and this compares with our estimate of $1.03. The rise in earnings can be attributed to higher sales and improved operating margins.

Although JCI met the street expectations in Q3, it slightly lowered its full-year outlook. It now expects its organic sales to rise in high single-digits compared to its earlier estimate of 10% growth for the full-fiscal 2023. It also narrowed its earnings outlook to $3.55 on a per-share and adjusted basis, vs. its prior guidance of between $3.50 and $3.60 per share. This did not sit well with investors, as evident from the stock price correction.

Relevant Articles
  1. Up 10% This Year, Does Johnson Controls Stock Still Have Room To Grow?
  2. Q4’23 Earnings Preview: Down 21% YTD Will Johnson Controls Stock Continue To Underperform?
  3. Margin Expansion To Drive Johnson Controls’ Q3?
  4. What’s Next For Johnson Controls Stock After An Upbeat Q2?
  5. Here’s What To Expect From Johnson Controls’ Q2
  6. Here’s What To Expect From Johnson Controls’ Q1

We have updated our model to reflect the latest quarterly performance and expect the company to post sales of $27.1 billion and adjusted EPS of $3.57 in fiscal 2023. We believe that Johnson Controls will continue to benefit from a robust demand environment, margin expansion, and a record backlog of $12 billion. Looking at the stock price, we estimate Johnson Controls Valuation to be $75 per share, about 18% above the current market price of $64. 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 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.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

Returns Aug 2023
MTD [1]
YTD [1]
Total [2]
 JCI Return -9% -1% 54%
 S&P 500 Return 0% 19% 104%
 Trefis Multi-Strategy Portfolio -2% 26% 304%

[1] Month-to-date and year-to-date as of 8/3/2023
[2] Cumulative total returns since the end of 2016

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