One of my preferred names in the hot HVAC space, Johnson Controls (JCI) has done pretty well since my last update, rising about 45% against roughly 30% moves at Carrier (CARR) and Trane (TT) and a weak performance at Lennox (LII) (my other preferred name, Daikin (OTCPK:DKILY) has not done as well). I believe some of this outperformance may be tied to rotation to less richly-valued names, as well as some appreciation for the upside Johnson Controls has in areas like building control, automation, and management, as well as indoor air quality and electrification.
The valuation call today is tougher. I still like the opportunity in those aforementioned market segments, as well as the opportunity to drive better revenue growth and margin leverage from improved service attachment (getting more of the ongoing maintenance revenue from its installed equipment). On the other hand, the shares are pretty richly-valued for what is actually a lackluster margin/ROIC/ROA profile, and discounted cash flow suggests mid-single-digit total annual return potential from here.
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Energy Efficiency, Automation, And Service Should Drive Growth At Johnson Controls
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