Johnson Controls stock (NYSE: JCI) has been on the rise after reports that activist hedge fund Elliott Management has built a position of over $1 billion in the company. The stock has seen gains of over 20% this year and has seen a strong increase of 55% from early 2021 levels. However, the journey hasn’t been smooth, with returns of 75% in 2021 but negative returns in 2022 and 2023, underperforming the S&P 500 in those years.
Consistently beating the S&P 500 has been a challenge for many stocks in recent years, including those in the Industrials sector and even megacap stars like Google, Tesla, and Microsoft. However, the Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period. The HQ Portfolio stocks have provided better returns with less risk, showcasing their outperformance compared to the broader index.
With the uncertain macroeconomic environment, including high oil prices and elevated interest rates, there is speculation about how Johnson Controls will perform in the coming year. While Elliott Management’s involvement is a positive for the stock in the short term, some analysts believe that JCI stock is now fully valued and may not see significant gains in the near future. The stock is currently trading at around 20x forward earnings, and investors are advised to wait for a potential dip before entering.
Analysts estimate Johnson Controls’ valuation to be $70 per share, based on an expected earnings of $3.62 per share for fiscal 2024. The company has not seen significant revenue growth recently due to various factors, but has benefited from robust demand for commercial HVAC. Johnson Controls expects its full-fiscal 2024 revenues to increase in the mid-single-digits, with earnings projected to be between $3.60 and $3.75 per share. Despite the positive outlook, the stock is considered appropriately priced at the moment.
While JCI stock may seem fully valued, it is important to compare how Johnson Controls’ peers are performing on key metrics. Investors can make informed decisions by analyzing peer comparisons across industries. With the market being highly volatile and unpredictable, it is crucial for investors to stay updated on the performance of both individual stocks and sector peers to make informed investment decisions.
