Q4’23 Earnings Preview: Down 21% YTD Will Johnson Controls Stock Continue To Underperform?

Johnson Controls (NYSE: JCI) will likely report its Q4 fiscal 2023 (fiscal year ends in September) next month. We expect the company’s revenues to come in at $7.1 billion, aligning with the consensus estimate. This would mark year-over-year growth of about 6%. Earnings will likely come in at about $1.10 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.

JCI stock has witnessed gains of 10% from levels of $45 in early January 2021 to around $50 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the increase in JCI stock has been far from consistent. Returns for the stock were 75% in 2021, -21% in 2022, and -21% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 13% in 2023 (YTD) – indicating that JCI underperformed the S&P in 2022 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the industrials sector, including UPS, CAT, and UNP, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could JCI face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? Going by our Johnson Controls valuation of $75 per share, there seems to be significant room for growth from its current level of $51. Our forecast is based on a 19x P/E multiple for JCI and expected earnings of $4.03 per share for the full fiscal year 2024.

The company will likely continue to benefit from strong demand trends for its commercial HVAC and fire and safety products. Looking at Q3 2023, Johnson Controls’ revenues were up 8% to $7.1 billion, driven by a 10% rise in Building Solutions and a 5% rise in Global Products segment sales. Global Product 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. The company’s adjusted EBIT margins improved by 160 bps to 13.8%, partly due to productivity initiatives. The company expects its margins to expand in the near term. Higher revenues and margin expansion resulted in a 21% bottom line growth to $1.03 per share on an adjusted basis in Q3, compared to the $0.85 figure in the prior-year quarter.

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.

[1] Month-to-date and year-to-date as of 10/19/2023
[2] Cumulative total returns since the end of 2016

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