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Vanina Egea
Vanina Egea
Articles (218)  | Author's Website |

New Management and a Profitable Outlook for This Auto Parts Giant

February 25, 2014 | About:

Stocks that are profitable in the first-quarter fiscal 2014, which also have encouraging projections for the entire fiscal 2014, have been drawing the attention of investors. This is the case of Johnson Controls (NYSE:JCI), a diversified enterprise with a promising outlook.

Even though JCI has to deal with big competitors such as Lennox International Inc. (NYSE:LII) or Siemens AG (SI), the company successfully conducts three operating groups. These are: the building efficiency segment, the automotive segment, and the power solutions segment. Each segment is a multi-billion operating business, that respectively showed revenue growth throughout fiscal 2013.

The Advantages of Diversification

As mentioned above, all of JCI´s operating groups where profitable throughout fiscal 2013. The company’s ability diversify its production has brought about a consistent annual increase in revenue over the past years.

Johnson Controls is one of the top automotive seating and interiors producers, a sector which contributed 51% to last year’s sales. But diversification helped to counter the cyclical drops in the automotive segment, produced by the nature of the industry it relies on. To show this tendency in numbers, the building efficiency segment contributed with 34% of fiscal 2013 sales, while in 2005 it only amounted to 21% of the company’s sales.

In addition, the power solutions operating group will benefit from more strict environmental regulations in the auto industry. JCI trumps rivales in start-stop vehicle technology and is leading the industry with its more efficient absorbent glass mat batteries (AGM´s). This segment was highly profitable throughout fiscal 2013 as it contributed 15% of last year’s sales and maintained an operating margin higher than 15%. The European and American auto industry will boost the company´s revenue growth, as OEMs are forced to meet environmental regulations. It is projected that the American, as well as the European, auto production will increase the use of AMG´s by 2015.

New Management Brings a New Course Along with Good News

JCI´s new chairmen, CEO and President is Alex A. Molinaroli, who has served prior to his current position as President of the Power Solutions business until October 2013. His designation brought a new course to the company, as JCI announced a share repurchase program of $3.65 billion. It is planned, that this amount will be repurchased evenly throughout fiscal 2014-2016.

The recent deal closed with Hitachi Ltd. (HTHIY), which will allow JCI to gain a 60% holding stake in the global air conditioning group Hitachi Appliances, is also exciting. This joint venture will make Johnson Controls the biggest commercial air conditioning supplier in the world.


For all the above mentioned reasons, I project that fiscal 2014 will be a very profitable year for JCI, with rising revenue and earnings growth. This tendency not only applies for the current fiscal year, but also for fiscal 2015.

Johnson Controls repurchased $1,2 billion shares in this fist-quarter, which increased the quarterly dividend to $0,22 or a 1.6% annual dividend yield. The cash flow generation is projected to be about $1.6 billion for 2014, which gives JCI plenty of margin to make profitable decisions. EPS rose 32.7% to $0.69 in this first-quarter. For fiscal 2014, EPS are projected to be in the range of $3.15 to $3.30. All business segments are expected to grow during fiscal 2014, this could make revenues rise %3 to $43.8 billion. Joel Greenblatt (Trades, Portfolio) and John Burbank (Trades, Portfolio) are investing in this stock and I also feel bullish about the firm’s future prospects.

Disclosure: Vanina Egea holds no position in any stocks mentioned.

About the author:

Vanina Egea
A fundamental analyst at Lone Tree Analytics

Visit Vanina Egea's Website

Rating: 5.0/5 (3 votes)


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