VALUATION HIGHLIGHTS
- North America constitutes 54% of the Trefis price estimate for Johnson Controls's stock.
- Global Products constitute 22% of the Trefis price estimate for Johnson Controls's stock.
- EMEA/LA constitutes 16% of the Trefis price estimate for Johnson Controls's stock.
WHAT HAS CHANGED?
JCI Stock vs. S&P 500 Performance
The changes in JCI stock over the recent years have been far from consistent. Returns for the stock were 77% in 2021, -19% in 2022, -8% in 2023, and 40% in 2024. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that JCI underperformed the S&P in 2023.
Q1 Fiscal 2025 Results
In the first quarter, Johnson Controls achieved a solid 10% organic revenue increase overall. However, the Global Products segment experienced an 8% year-over-year decrease in sales. Contributing to the overall growth were strong performances in North America (up 10%), EMEA/LA (up 3%), and Asia Pacific (up 4%). The company also reported a significant rise in adjusted earnings per share, increasing from $0.46 in the same period last year to $0.64 in Q1 of fiscal year 2025. Looking ahead, Johnson Controls anticipates mid-single-digit organic revenue growth and high-single-digit earnings growth for the full fiscal year 2025.
Focus on China and other Developing Countries
Johnson Controls stands to benefit significantly from key global trends. The rapid urbanization in developing nations presents substantial market opportunities, while increasingly stringent environmental regulations, exemplified by China's "green" initiatives, are fueling demand for greater energy efficiency. Furthermore, the proliferation of the Internet of Things (IoT) as the dominant connectivity method, coupled with the rising demand for smart building applications, will further expand the market. These converging trends are expected to drive significant earnings growth for Johnson Controls, offering numerous avenues for strategic expansion across its existing platforms.
Sale of R&LC HVAC Business
In a move to sharpen its focus on commercial building solutions, Johnson Controls has sold its residential and light commercial HVAC business to Bosch Group for $8.1 billion in an all-cash transaction (announced in July 2024).
Sale of its Power Solutions segment
In April 2019, Johnson Controls completed the sale of its Power Solutions business to Brookfield Business Partners L.P. in a cash transaction valued at $13.2 billion.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are the key drivers of Johnson Controls' value that present opportunities for upside or downside:
Buildings Solutions Asia Pacific
- Johnson Controls EBITDA Margin:
Johnson Controls' EBITDA margin has shown consistent growth, rising from 8.1% in fiscal 2016 to 11.3% in fiscal 2024. Our projections indicate a significant further improvement, reaching 24% by the end of fiscal 2031. However, this forecast could be exceeded if Johnson Controls achieves higher volumes in equipment, control systems, and services, coupled with improved pricing. Specifically, if the Building Solutions EBITDA margin surpasses 30% by the end of our review period, our price target for JCI could see an upside of over 25%.
BUSINESS SUMMARY
Johnson Controls is a global multi-industrial company specializing in providing heating, ventilation, and air-conditioning (HVAC) solutions, as well as other mechanical systems for buildings. Beyond HVAC, the company offers technical services, energy management consulting, and operational support, catering to the entire real estate portfolios within the non-residential buildings market. Johnson Controls also manufactures and distributes industrial refrigeration products.
The company's operations are primarily structured under its Buildings segment, which encompasses building efficiency, fire equipment, and security services. Johnson Controls holds a leading global position in delivering integrated control systems, mechanical equipment, products, and services aimed at enhancing the comfort, safety, and energy efficiency of both non-residential and residential buildings, operating in over 150 countries. The company generates revenue through technical services and the replacement and upgrade of HVAC controls and mechanical equipment in existing buildings, benefiting from a strong base of repeat customers. Additionally, it supplies and installs controls and equipment for new building construction. Johnson Controls often maintains long-term relationships with customers, supporting them throughout the entire building lifecycle.
Johnson Controls is also a major global provider of security products and services, fire detection and suppression products and services, and life safety products. The business offers a comprehensive portfolio of products and services marketed under well-known brands such as Tyco, SimplexGrinnell, Sensormatic, Wormald, Ansul, Simplex, and Scott, serving the security, fire detection, suppression, and life safety needs of commercial, industrial, retail, small business, institutional, and governmental markets, as well as residential markets outside the U.S., Canada, and Korea.
KEY TRENDS
Impact of Global Events
While the initial spread of COVID-19 in early 2020 caused lockdowns and disrupted industrial and economic activity globally, impacting overall demand, Johnson Controls experienced a rebound in demand starting in fiscal year 2021. More recent global events, including geopolitical tensions and economic fluctuations, continue to influence market dynamics, potentially affecting construction projects and supply chains. However, the underlying need for building infrastructure and efficient building solutions remains robust.
Strategic Focus on High-Growth Markets
Emerging markets, particularly in Asia, are projected to be significant drivers of growth in the global HVAC market. Factors such as increasing income levels, continued urbanization, and relatively low current penetration rates of HVAC equipment contribute to this potential. China remains a dominant force in the global HVAC market, accounting for the highest annual unit sales. Johnson Controls' established presence in China and other major developing markets positions the company favorably to capitalize on these expanding opportunities.
Increased Construction Spending in Developing Regions
Construction spending in both residential and non-residential sectors is on the rise in developing countries as populations migrate from rural areas to urban centers. The growth potential is substantial, given that the percentage of the population living in cities in less developed regions (including Africa, Asia excluding Japan, Latin America, and the Caribbean) is considerably lower than in developed regions. Even countries like China and India, which have experienced decades of strong growth, still have a significant proportion of their populations residing in rural areas. As urbanization continues in these regions, substantial investments in housing, commercial buildings, and other infrastructure are expected, creating significant growth opportunities for Johnson Controls' building market businesses.
Growing Global Emphasis on Energy Efficiency and Sustainability
The increasing global focus on energy efficiency, driven by rising energy costs and initiatives to reduce emissions, is a key trend benefiting Johnson Controls. Environmental regulations worldwide are pushing for greater energy efficiency in buildings. For example, China continues to prioritize "green" construction and emissions reduction. The demand for higher energy efficiency in buildings is also driving growth in the company's energy-related advisory services. Johnson Controls' position is strengthened by the fact that investments in building energy efficiency often yield returns for customers through lower operational costs.
Rising Awareness of Air Quality Driving HVAC Demand
Increased awareness among homeowners and building managers regarding the importance of air quality is boosting demand for HVAC solutions. With allergies and respiratory issues being prevalent, there is a growing recognition of the impact of indoor air quality on health and well-being. This trend is expected to further increase the sales of ventilation equipment and air purification systems, areas where Johnson Controls offers relevant solutions.
