Johnson Controls International plc (JCI) in Cork, Ireland, operates globally as a diversified technology and multi-industrial company. JCI was significantly impacted by the COVID-19 pandemic-led decline in non-residential construction activity. The company has been dealing with supply chain disruptions and inflation pressure over the past few months and expects these headwinds to remain in the near term. However, JCI is focused on accelerating its growth capabilities, leveraging innovative technologies, and capitalizing on its growth vectors. And its cost-reduction programs are expected to help the company improve its margins. “I am excited and encouraged by the pace of demand in many of our end markets and our record backlogs, both of which position us well for fiscal 2022,” asserted George Oliver, chairman, and CEO.

For the fourth quarter, ended September 30, JCI’s non-GAAP sales increased 7% year-over-year to $6.40 billion, while its non-GAAP net income increased 12% from its year-ago value to $628 million. The company’s EPS increased 16% year-over-year to $0.88.

As overall economic activity picks up, the demand for building products is rising, which should benefit JCI. However, the newly identified COVID-19 omicron variant is threatening the global economic recovery with rising cases of infection. If the new variant leads to another COVID-19 surge, it could hamper the economic recovery and hurt JCI’s earnings growth. The company’s net income has declined at an 8.9% CAGR over the past three years.

Shares of JCI have gained 75.7% in price over the past year and 70.7% year-to-date. The stock is trading above its 50-day and 200-day moving averages.

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Here is what could shape JCI’s performance in the near term:

Mixed Valuation

In terms of forward P/E, JCI is currently trading at 24.77x, which is 7.3% higher than the 23.09x industry average. Also, its 2.52 forward EV/Sales ratio is 25.5% higher than the 2.01 industry average.

However, JCI’s trailing-12-month PEG is 52.2% lower than the 0.53x industry average, , and its forward Price/Book is 1.1% lower than the 3.00x industry average.

Mixed Profitability

JCI’s 34.05% gross profit margin is 15.5% higher than the 29.47% industry average. Also, its 11.38% levered FCF margin is higher than the 5.59% industry average.

However, JCI’s respective ROE and ROA are 36.4% and 24.3% lower than the 13.58% and 5.16% industry averages.

POWR Ratings Reflect Uncertainty

JCI has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Value, consistent with its mixed valuation.

JCI also has a C grade for Quality, which is in sync with its mixed profitability.

Of the 52 stocks in the Industrial – Building Materials industry, JCI is ranked #33.

Beyond what I have stated above, one can also view JCI’s grades for Sentiment, Growth, Momentum, and Stability here.

View the top-rated stocks in the Industrial – Building Materials industry here.

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Bottom Line

JCI is a well-established company, which has gained significant investor attention over the past few months. The company reported a stable rise in financials in its last reported quarter. And with the gradual reopening of the economy, the demand for non-residential building solutions is likely to rise, boosting the company’s earnings growth. However, the omicron variant could disrupt the global recovery and adversely impact JCI’s operational capability. Also, the stock has a relatively high beta of 1.10. So, we think it could be wise to wait for a better entry point in the stock.

JCI shares were trading at $79.21 per share on Thursday morning, down $0.33 (-0.41%). Year-to-date, JCI has gained 72.09%, versus a 26.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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