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Johnson Controls Can Handle Headwinds of Slower Economy

By    |   Wednesday, 08 August 2012 11:25 AM

Johnson Controls (JCI) is in a good position to handle the headwinds of a slower global economy, according to analysts. Given that its major businesses are related to real estate development and automotive sales, it’s not surprising that the company might waver its outlook. Nevertheless, analysts see good things ahead for JCI.

Johnson Controls is a global, diversified technology and industrial leader serving customers in more than 150 countries. JCI creates products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles.

The building efficiency business is a global market leader in designing, producing, marketing and installing integrated heating, ventilating and air conditioning (HVAC) systems, building management systems, controls, security and mechanical equipment, management said in a recent filing.

In addition, the building efficiency business provides technical services, energy management consulting and operations of entire real estate portfolios for the non-residential buildings market. It also provides residential air conditioning and heating systems and industrial refrigeration products.

The automotive experience business is one of the world’s largest automotive suppliers, providing innovative interior systems through our design and engineering expertise, JCI said. Its technologies extend into virtually every area of the interior including seating and overhead systems, door systems, floor consoles, instrument panels, cockpits and integrated electronics. The company sells to most of the world’s major automakers.

Finally, the power solutions business is a leading global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. Johnson Controls serves both automotive original equipment manufacturers (OEMs) and the general vehicle battery aftermarket. It is the leading supplier of batteries to power Start-Stop vehicles, as well as lithium-ion battery technologies to power certain hybrid and electric vehicles.

“We've seen demand slow across several of our industries and geographic markets. Clearly, the one exception has been the North American auto market, where production was up 27 percent in the third quarter,” JCI Chairman and CEO Stephen Roell recently told analysts.

“But I think even that good news is tempered by the most recent outlook for the current quarter, our fourth fiscal quarter where production growth is expected to slow to about 4 percent.”

Johnson Controls has a market cap of $17.8 billion in a sector, auto components, where the average company size is $1.62 billion. Its trailing 12-month P/E ratio is 10.33 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.62, compared to 0.83 for the sector.

Its projected earnings per share growth for the coming year is 16.27 percent, compared to a sector average of 13.14 percent.

Strong balance sheet

Wall Street is generally positive on JCI, with buy or outperform calls from JMP Securities, Needham, Standard & Poor’s Equity Research, and Stifel Nicolaus.

“We expect JCI's long-term sales and earnings growth to exceed that of peers, and for the company to show greater earnings stability, aided by its diversification in geography, products and customers. The stock's P/E multiple was recently below that of the S&P 500, based on our calendar 2012 estimates,” S&P analysts wrote July 23.

“We view the balance sheet as strong, with long-term debt generally at 20 percent to 36 percent of capitalization over the past decade.”

Johnson Controls next reports on Oct. 25.

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Wednesday, 08 August 2012 11:25 AM
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