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Wisconsin-based Johnson Controls, Inc. (JCI) is a supplier of automotive interiors, batteries, and other control equipment. The company commands a strong position in its markets. Further, its cost reduction efforts, accretive acquisitions, and healthy operating cash flows are driving the stock.
Johnson Controls is expected to report higher earnings in the coming years, backed by acquisition benefits and success in overcoming increasing raw material costs and weakening prices. However, with the Plastech joint venture, the company is expected to incur high restructuring expenses, which would affect earnings negatively. Higher debt levels will also raise interest expenses and thereby hurt margins.
The company also reduced earnings guidance by 5% to 6% for 2008. A weakening product mix and raw material/price squeeze along with a weak domestic automotive market lead us to rate the stock a Hold. Our target price of $18.50 is 9.5x our 2009 EPS estimate.
Read the full analyst report on JCI
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