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3 Reasons Johnson Controls Inc.'s Stock Could Rise

Source: American Institute of Architects.

If the index is accurate, investors can expect an improvement in the HVAC market in the next year, and with the institutional market finally starting to improve, that should be good news for Johnson Controls.

Restructuring the automotive efficiency segment

The ongoing restructuring of the automotive efficiency segment (33% of segment income in the first nine months) continues apace, and readers can expect more benefits going forward. Income in the segment increased by 36% in the first nine months, with segmental income margin at 3.8% versus 3% for the same period last year. The margin improvement is part of the move to refocus the segment on its most profitable areas.

Moreover, the restructuring continues with the sale of its automotive electronics business to Visteon for $265 million and the creation of a joint venture with China's Yanfeng Automotive for its auto-interiors business. These moves will see the company focusing on its auto-seating business. This is good news, because the auto-interiors business actually lost $9 million in 2013, while the seating business (adjusting for a $476 million divestiture in electronics) contributed 88% of segmental income. The refocusing on seating will help management maximize profitability in the segment.

Power solutions pickup?

The power solutions segment manufactures car batteries, and as such, it's subject to demand from the aftermarket (around 75% of sales) and automotive manufacturers (25%). The case for improvement is simple: If the economy improves, then cars tend to get driven more, and if cars are driven more, then more car batteries will be bought.

For example, data from the U.S. Department of Transportation indicates that passenger miles for light-duty, short-wheel-base vehicles (i.e., cars) increased by 2.4% from 2009 to 2012. It's reasonable to expect that they will continue to do so in the near future, assuming an ongoing economic recovery.

The takeaway

All told, these three reasons indicate a mix of positive catalysts for Johnson Controls' share price, and investors should recognize the potential of this stock. The move to diversify away from the automotive sector is also a positive if you believe that diversification reduces risk. There is a lot to like about Johnson Controls, and with an improvement in the construction markets seemingly around the corner, the company looks set to reap the benefits of its investment in the industry.

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The article 3 Reasons Johnson Controls Inc.'s Stock Could Rise originally appeared on Fool.com.

Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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