On Jan 21, we maintained our Neutral recommendation on
Johnson Controls Inc.
) factoring in the opportunities from its focus on China and
benefit from new hybrid battery business. However, the company's
earnings fell in the first quarter of fiscal 2013 (ended Dec 31,
2012) and it remains exposed to pricing pressure from OEMs and
Johnson Controls, on Jan 18, posted a 16.1% fall in earnings in
the first quarter to 52 cents per share from 62 cents in the same
quarter last year as global demand for its products weakened.
However, the results surpassed the Zacks Consensus Estimate by a
penny. Net income declined 16.5% to $354 million from $424
million in the first quarter of fiscal 2012.
Revenues in the quarter were flat at $10.4 billion, but exceeded
the Zacks Consensus Estimate of $10.2 billion. Revenues remain
unchanged as the benefit from strong business backlog was offset
by weak demand across the globe, especially in Europe.
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 went down by 1.1% to $2.61 per share.
Meanwhile, the Zacks Consensus Estimate for 2014 declined 1.9% to
$3.15 per share. While the Zacks Consensus Estimates for both
fiscal 2013 and 2014 are declining, the company maintains a Zacks
Rank #3 (Hold).
Johnson Control's battery business will benefit from rising
demand for new hybrid batteries. The company is the leading
supplier of Start-Stop batteries in Europe with its VARTA brand
and it expects that market for Start-Stop batteries will grow to
35 million units by 2015.
The company will also benefit from the focus on China. Johnson
Controls occupies 50% market share in seating business in China.
The company has invested $500 million in four automotive battery
plants in Shanghai, which will produce 30 million batteries by
However, the company faces pricing pressures from OEMs due to
their high inventory levels. In addition, volatility in commodity
cost and strong competition from major domestic and international
manufacturers and distributors of lead-acid batteries could
affect the company's profitability.
Other Stocks to Look For
Commercial Vehicle Group Inc.
Allison Transmission Holdings
) are performing well in the same industry, where Johnson
Controls operates. While Commercial Vehicle Group is a Zacks Rank
#1 (Strong Buy) stock, Oshkosh Corporation and Allison
Transmission are Zacks Rank #2 (Buy) stocks.
ALLISON TRANSMN (ALSN): Free Stock Analysis
COMML VEHICLE (CVGI): Free Stock Analysis
JOHNSON CONTROL (JCI): Free Stock Analysis
OSHKOSH CORP (OSK): Free Stock Analysis
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