Is Johnson Controls International (JCI) Cheap On Its HVAC And Automation Growth Story?

Johnson Controls International (JCI) has drawn investor attention after recent share price weakness, with the stock down about 6% over the past month and roughly 3% over the past 3 months.

Looking beyond the recent pullback, Johnson Controls International’s share price has still delivered a 13.02% year to date return, while its 1 year total shareholder return of 31.01% and 3 year total shareholder return of 144.38% point to momentum built over a longer period despite the latest cooling in sentiment.

Scan hand picked peers with similar momentum to Johnson Controls International by checking out the 45 high quality undervalued stocks, which also pair recent strength with solid fundamentals.

After that pullback, Johnson Controls International now trades at a small 3.2% discount to one estimate of intrinsic value and a wider 18% discount to analyst targets. Is this market caution sensible or overly conservative on the stock?

Most Popular Narrative: 10.9% Undervalued

On the most followed narrative, Johnson Controls International is priced at $138.24 against an implied fair value of $155.21, which hinges heavily on execution in higher margin areas.

The company has significant opportunities for cost reductions and process improvements through the implementation of Lean practices, likely positively impacting net margins and overall earnings. Johnson Controls’ strong record backlog and sustained demand in key areas, such as its York HVAC and Metasys building automation platforms, provide a solid foundation for future revenue growth.

Read the complete narrative.

It is worth examining what kind of revenue path and margin lift would need to materialise for that fair value to hold up. The narrative leans on a specific earnings profile, a richer profit mix and a future valuation multiple that is usually reserved for faster growing peers. The full story pulls these moving parts together into one tight forecast.

Result: Fair Value of $155.21 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, the narrative around Johnson Controls International could be challenged if operational complexity slows margin progress, or if data center demand and portfolio actions fall short of expectations.

Find out about the key risks to this Johnson Controls International narrative.

Another View: What Johnson Controls International’s P/E Is Telling You

There is a different read on Johnson Controls International when looking at its P/E. The stock trades at 38.4x earnings compared with 21x for the US Building industry and 27.3x for peers, while the fair ratio sits at 38.6x. That premium narrows the margin for error if growth or execution slip.

See what the numbers say about this price in the valuation breakdown See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Mixed messages around Johnson Controls International can make the picture feel unclear. Move quickly, review the facts, and weigh both the 3 key rewards and 2 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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