Goldman Sachs Adds Johnson Controls (JCI) to Conviction Buy List
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(Updated - November 1, 2016 8:59 AM EDT)
Goldman Sachs upgraded Johnson Controls (NYSE: JCI) from Buy to Conviction Buy with a price target of $46, implying upside of 14%. Analyst Joe Ritchie thinks shares are underappreciated.
"...we see JCI as a franchise with improving fundamentals, cost savings that should support the majority of EBIT growth, and a reasonable valuation that belies its top quartile EPS/EBIT growth and a world-class auto battery business. After a 3Q EPS season where growth stabilization remains scarce, JCI stands out as a self-help story with inexpensive valuation, and we are more confident that cost savings can support most of our LDD segment EBIT CAGR over the next three years," said Ritchie.
Discussing catalysts, the analyst said, "From our conversations with investors since initiating on JCI, we believe several aspects of the shares are underappreciated: (1) Power Solutions is not an auto OE business — and should not trade like one. The battery business is three-fourths aftermarket, JCI has dominant share in both traditional SLI/newer AGMs (36%/70% global share), and its high-teens EBIT margins far outpace battery peers’ low-teens EBIT margins; (2) Organic growth could drive upside to numbers. Three-fourths of our LDD segment EBIT CAGR is fueled by synergies from the TYC merger, so better organic incrementals could drive upside; (3) Valuation looks even more reasonable with cost savings. We estimate the company’s targeted $900mn of cost savings has a PV of ~$0.65-$0.70/share, implying that JCI is trading at ~12.5x our FY17E EPS plus PV of synergies (vs. Multis: 17.5x)."
Shares of Johnson Controls closed at $40.32 yesterday.
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Related EntitiesGoldman Sachs Conviction Buy List, Goldman Sachs, Definitive Agreement
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