On May 26, we maintained our Neutral recommendation on
Johnson Controls Inc.
) based on its leading position in the automotive interiors
market together with better opportunities from restructuring
initiatives and improvements in European and South American
Automotive Experience businesses. However, we are concerned about
the decline in earnings and revenues in the second quarter of
JOHNSON CONTROL (JCI): Free Stock Analysis
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On Apr 23, Johnson Controls posted a 23.6% decline in adjusted
earnings to 42 cents per share in the second quarter of fiscal
2013 from 55 cents in the same quarter of prior year. However,
earnings were in line with the Zacks Consensus Estimate.
Revenues in the quarter slipped 1.3% to $10.43 billion, but
marginally exceeded the Zacks Consensus Estimate of $10.39
billion. The decline was attributable to lower revenues in the
company's Automotive Experience and Building Efficiency segments.
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 remained constant at $2.60 per share.
Meanwhile, the Zacks Consensus Estimate for 2014 increased 1.3%
to $3.14 per share. Currently, Johnson Controls maintains a Zacks
Rank #3 (Hold).
Johnson Controls's battery business will benefit from rising
demand for new hybrid batteries. It is the leading supplier of
Start-Stop batteries in Europe banking on its VARTA brand.
Johnson Controls expects the Start-Stop batteries market to
improve to 35 million units by 2015.
Johnson Controls expects to benefit from restructuring
initiatives, higher profitability from its Building Efficiency
segment and improvements in European and South American
Automotive Experience businesses in the second half of 2013.
Higher profitability in Power Solutions business in the second
half of fiscal 2013 is also expected to have favorable impact on
However, Johnson Controls faces pricing pressure from OEMs due to
their high inventory levels. In addition, volatility in commodity
cost and strong competition from major domestic, 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 include
Tower International, Inc.
STRATTEC Security Corporation
). All these companies carry a Zacks Rank #1 (Strong Buy).