Margin Expansion To Drive Johnson Controls’ Q3?
Johnson Controls (NYSE: JCI) will report its Q3 fiscal 2023 (fiscal year ends in September) results on Wednesday, Aug 2. We expect the company’s revenues to come in at $7.2 billion, aligning with the consensus estimate. This would mark year-over-year growth of about 8%. Earnings will likely come in at about $1.03 on a per-share and adjusted basis, also falling in line with the consensus estimate. See our interactive dashboard analysis on Johnson Controls Earnings Preview for more details on how the company’s revenues and earnings will likely trend for the quarter.
The company will likely continue to benefit from better price realization and strong demand trends for its commercial HVAC and fire and safety products. Looking at Q2 2023, Johnson Controls’ revenues were up 10% to $6.7 billion, driven by a 13% rise in North America sales and an 8% rise in Global Products segment sales. Global Products sales should continue to trend higher, driven by robust demand for fire detection, industrial refrigeration, and commercial HVAC products, a trend seen in the recent past.
Looking at the bottom line, Johnson Controls reported $0.75 earnings per share on an adjusted basis in Q2, compared to the $0.63 figure in the prior-year quarter. The company’s adjusted EBIT margins improved by 70 bps to 10.7%. Its GAAP operating margin rose 160 bps to 9.9% in Q2’23, aided by better price realization. Johnson Controls will likely see its operating margin improve over 100 bps in Q3. Our Johnson Controls’ Operating Income Comparison dashboard has more details.
Looking at JCI’s stock price, we believe it is appropriately priced. We estimate Johnson Controls’ valuation to be $71 per share, aligning with the current market price. Our forecast is based on a 20x P/E multiple for JCI and expected earnings of $3.56 on a per-share and adjusted basis for the full-fiscal 2023. The 20x P/E multiple aligns with JCI’s last five-year average. The company has guided adjusted EPS to be in the range of $3.50 to $3.60 for the full-fiscal 2023. The company expects its fuel costs to be lower for the year, implying margin expansion in the coming quarters.
While JCI stock looks like it can see higher levels, it is helpful to see how Johnson Controls’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.
| Returns | Aug 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| JCI Return | 0% | 9% | 69% |
| S&P 500 Return | 0% | 19% | 105% |
| Trefis Multi-Strategy Portfolio | 0% | 29% | 314% |
[1] Month-to-date and year-to-date as of 8/1/2023
[2] Cumulative total returns since the end of 2016
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