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Here's Why You Should Hold on to Johnson Controls (JCI) Now

Johnson Controls International JCI is exhibiting buoyancy in its operations owing to a robust demand environment and pricing actions. Cost-control initiatives are helping the company generate substantial productivity savings, despite escalating cost of sales. Adjusted segment EBITA margin expanded 120 basis points (bps) year over year in the fiscal third quarter, thanks to productivity savings of $75 million.

For fiscal 2023, this Zacks Rank #3 (Hold) company expects to achieve productivity savings of $340 million. With this, the company expects adjusted segment EBITA margin to improve 120-130 bps year over year. For fiscal 2023, it expects the same to improve 100-120 bps.

Johnson Controls’ measures to reward its shareholders are encouraging. In fiscal 2022, the company repurchased 21.7 million shares for approximately $1.4 billion. In March 2023, the company hiked its dividend by 2.9% to 36 cents per share. In the first six months of fiscal 2023, the company returned more than $700 million to shareholders through a combination of dividends (nearly $500 million) and share buybacks (roughly $250 million).

The Building Solutions North America segment is benefiting from continued improvement in HVAC & Controls and growth in the Install business. Segmental revenues increased 9% year over year in the first six months of fiscal 2023. Growth in the Service and Install businesses, thanks to the strength in Fire & Security and HVAC & Controls, is aiding the Building Solutions Europe, Middle East, Africa/Latin America segment. Revenues from the segment climbed 5% year over year in the first half of fiscal 2023.

Continued demand for HVAC & Controls is helping the Building Solutions Asia Pacific stay afloat (revenues up 1% year over year in the first half of fiscal 2023). Recovery from COVID-related shutdowns in China should drive the segment’s performance in the second half of fiscal 2023.

While supply chain disruptions and a slowdown in residential demand are affecting the Global Products segment’s performance, growth in commercial HVAC is helping the unit stay afloat. Revenues from the unit climbed 4% year over year in the first half of fiscal 2023.

Johnson Controls’ bullish guidance for the fiscal third quarter and the full year spark optimism in the stock. For the fiscal third quarter and the full year, JCI anticipates organic revenue growth of approximately 10% year over year each. For the fiscal third quarter, the company anticipates adjusted earnings of $1.01-$1.03 per share, indicating a year-over-year increase of 19-21%. For fiscal 2023, JCI estimates adjusted earnings of $3.50-$3.60 per share, indicating a 17-20% year-over-year increase.

Investments in digital offerings, like the OpenBlue digital platform, which plays an integral part in meeting customer needs, are expected to drive JCI’s growth. Digital integration of OpenBlue with Johnson Controls' core building systems will optimize the performance of the full HVAC system.

Due to the abovementioned tailwinds, shares of Johnson Controls have gained 19.2% in a year, outperforming the industry’s 10.2% increase.

Zacks Investment Research
Zacks Investment Research


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Key Picks

Some better-ranked stocks within the broader Industrial Products sector are as follows:

ABB Ltd ABB presently carries a Zacks Rank #2 (Buy). The company pulled off a trailing four-quarter earnings surprise of 8%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks.

ABB has an estimated earnings growth rate of 26.5% for the current year. The stock has rallied 21.6% in the year-to-date period.

Allegion plc ALLE presently carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 12.5%, on average.

Allegion has an estimated earnings growth rate of 16.3% for the current year. The stock has gained approximately 4% in the year-to-date period.

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