EUR 850.00 For Business Accounts Only

Morningstar | Johnson Controls' Fundamentals Improved in 2018 and Should Get Even Better in 2019

Before 2016, the market had long viewed Johnson Controls as an automotive-parts company since about two thirds of its sales, on average, had come from automakers over the previous 10 years. However, after merging with Tyco International in September 2016 and spinning off the automotive seating business, now known as Adient, in October 2016, Johnson Controls is now a more profitable and less cyclical business, one with much less exposure to the volatility of the automotive original-equipment manufacturer market and more exposure to higher-margin, recurring service revenue. We think Tyco's suite of security and fire-protection products and services complements Johnson Controls' legacy building efficiency business, and the combination should drive synergies and enhanced market penetration. We also expect Johnson Controls' building technologies and solutions segment to benefit from secular trends in global urbanization and increased demand for energy-efficient and smart building products and solutions.Johnson Controls' power solutions segment is the largest producer of lead-acid automotive batteries in the world, manufacturing approximately 154 million lead-acid batteries annually. The company has 36% global market share; it is the leading supplier in the Americas and Europe and the second-largest supplier in China. Power solutions’ significant exposure to the inelastic aftermarket business (76% of segment sales) yields stability, while the segment’s participation in emerging markets and start-stop vehicle technology provides substantial growth opportunities.Over the next few years, Johnson Controls expects to realize $1.2 billion of merger-related synergies, which should support improved profitability and earnings growth for the combined company. As of the end of fiscal 2018, Johnson Controls remains on track to achieve its synergy target.In March 2018, Johnson Controls announced that it's exploring strategic alternatives for its power solutions business. We believe power solutions' divestiture can create shareholder value, and we see more positive than negative implications of Johnson Controls operating as a pure-play building technologies company.