On Mar 22, we maintained our Neutral recommendation on
Johnson Controls Inc.
) based on its leading position in automotive interiors,
batteries and other control equipments market. However, we are
concerned about the pricing pressure from OEMs and strong
competition together with weak end markets and adverse effects of
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On Jan 18, Johnson Controls posted a 16.1% fall in earnings in
the fiscal 2013-first quarter to 52 cents per share from 62 cents
in the same quarter last year as global demand for its products
weakened. However, earnings surpassed the Zacks Consensus
Estimate by a penny.
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 1.5% to $2.60 per share.
Meanwhile, the Zacks Consensus Estimate for 2014 declined 3.4% to
$3.10 per share. Currently, Johnson Controls maintains a Zacks
Rank #3 (Hold).
Johnson Control's battery business will benefit from rising
demand for new hybrid batteries. It is the leading supplier of
Start-Stop batteries in Europe with its VARTA brand and Johnson
Controls expects that market for Start-Stop batteries to improve
to 35 million units by 2015.
Johnson Control will benefit from its focus on China. The company
operates 26 manufacturing plants catering to the automotive
business and commands 50% market share in seating business in
China. Johnson Control is also investing in the automotive
battery plants in Shanghai, which is expected to produce 30
million batteries by 2015.
However, Johnson Controls 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 mar the profitability of Johnson Controls.
Other Stocks to Look For
Few stocks that are performing well in the industry where Johnson
Controls operates include
STRATTEC Security Corp
). All these companies carry a Zacks Rank #1 (Strong Buy).