Up 10% This Year, Does Johnson Controls Stock Still Have Room To Grow?

JCI: Johnson Controls logo
Johnson Controls

Johnson Controls stock (NYSE: JCI) reported its Q2 fiscal 2024 results last week (fiscal ends in September), with revenue marginally missing and earnings exceeding the street expectations. The company reported revenue of $6.70 billion and adjusted earnings of $0.78 per share, compared to the consensus estimates of $6.75 billion and $0.75, respectively. Looking at JCI stock, we think it has some room for growth from its current levels of $63. In this note, we discuss Johnson Controls’ stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at Johnson Controls’ stock performance. JCI stock has seen strong gains of 45% from levels of $45 in early January 2021 to around $65 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. However, the increase in JCI stock has been far from consistent. Returns for the stock were 75% in 2021, -21% in 2022, and -10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that JCI underperformed the S&P in 2022 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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  4. Margin Expansion To Drive Johnson Controls’ Q3?
  5. What’s Next For Johnson Controls Stock After An Upbeat Q2?
  6. Here’s What To Expect From Johnson Controls’ Q2

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could JCI face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think JCI stock has some room for growth. We estimate Johnson Controls’ Valuation to be $70 per share, reflecting over 10% gains from its current market price of $62. Our estimate is based on a 19x expected earnings of $3.62 per share for fiscal 2024. The 19x figure is close to the stock’s average P/E over the last four years.

Johnson Controls’ revenues were up 1% organically to $6.7 billion in fiscal Q2’24. Looking at segments, Asia Pacific sales plunged 26% amid continued weakness in China, and Global Products revenue was down 3% due to lower demand for residential HVAC. However, this was offset by a 9% rise in the North America sales and a 3% growth in EMEA/LA revenue. Johnson Controls’ adjusted EBIT margin expanded by 70 bps y-o-y to 11.4% in Q2. The company’s adjusted earnings grew marginally to $0.78 per share, compared to $0.75 in the prior-year quarter.

Looking forward, the company expects its full-fiscal 2024 organic revenues to rise in the mid-single-digits and its earnings to be between $3.60 and $3.75 on a per-share and adjusted basis. The company will likely continue to benefit from a robust demand for commercial HVAC, and a better margin profile will aid its earnings growth. Although JCI stock is up 10% this year, we think it has some more room for growth from here.

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.

Returns May 2024
MTD [1]
YTD [1]
Total [2]
 JCI Return -3% 10% 54%
 S&P 500 Return 3% 9% 131%
 Trefis Reinforced Value Portfolio 3% 3% 632%

[1] Returns as of 5/7/2024
[2] Cumulative total returns since the end of 2016

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