Johnson Controls Strong on Better Outlook & Dividend Hike - Analyst Blog

On Dec 19, 2014, we issued an updated research report on Johnson Controls Inc. (JCI). This Zacks Rank #3 (Hold) stock had reported a positive earnings surprise of 2.97% in the last quarter.

Johnson Controls reported adjusted earnings of $1.04 per share in fourth-quarter fiscal 2014 (ended Sep 30, 2014), surpassing the Zacks Consensus Estimate of $1.01. Earnings were up 14.3% from 91 cents recorded in the year-ago quarter. Notably, last year's financial details have been revised as the company classified its Automotive Electronics business as a discontinued operation.

Johnson Controls projects better results in fiscal 2015 compared to fiscal 2014, based on expectations of higher profitability from all three businesses. The company believes that its strategic and financial plans will lead to better performance and higher operating margins. Johnson Controls expects earnings per share in the band of $3.55 to $3.70 for fiscal 2015, compared with $3.18 per share earned in fiscal 2014. The company anticipates earnings in the range of 74 cents to 77 cents in the first quarter of fiscal 2015. Revenues in 2015 are likely to benefit from the improvement in results in the Building Efficiency and Power Solutions segments.

Johnson Controls regularly increases its dividend to boost shareholder value. The company has raised its dividend in 34 of the past 36 years. Moreover, the company has regularly paid dividends since 1887. In Nov 2014, Johnson Controls raised its quarterly dividend by 18% to 26 cents per share from 22 cents paid earlier. The new dividend implies an annual yield of 2.1% based on the closing share price of $50.19 as of Nov 19, up from the yield of 1.8% based on the old dividend.

However, we are concerned about the strong competition from major domestic and international manufacturers and distributors of lead-acid batteries, particularly in North America, Europe and Asia. The manufacturers in these markets compete on price, quality, technical innovation, service and warranty. In addition, Johnson Controls expects revenues to decline to $42.3 billion in fiscal 2015 from $42.8 billion reported in fiscal 2014.

Investors interested in the auto industry could consider better-ranked stocks like Allison Transmission Holdings, Inc. (ALSN), Gentex Corp. (GNTX) and STRATTEC Security Corporation (STRT). All these stocks have a Zacks Rank #1 (Strong Buy).

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