Analyst Joe Ritchie mentioned differentiated organic growth, synergies, improving free cash flow and attractive valuation as the four catalysts.
The analyst estimates 2017/2018 organic growth of 3–4 percent, above the 1–2 percent average run rate for his coverage universe. According to the analyst, the exposure of the company is more nuanced than just auto/non-residential, as new construction represents less than 25 percent of non-residential activity and its battery business is tied to a secular shift from traditional lead acid to AGMs.
Goldman said its analysis of industrial deal implies average cost efficiency of about 6–7 percent. The firm noted that about 3/4th of its incremental EBIT through 2019 is driven by operational improvements, with organic growth contributing very little.
The firm commended the improvement in free cash flow, even as the metric is not as strong as its peers. Despite investor concerns on peaking non-residential construction and auto cycle weighing on the shares of the company, Goldman believes the strong EBIT growth and improving returns warrant a higher multiple.
At last check, Johnson Controls was up 1.23 percent at $44.60.
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