Is Johnson Controls A 'Value Trap'? Goldman Downgrades
Many Johnson Controls International plc Ordinary Share (NYSE: JCI) shareholders are frustrated with the stock's performance as of late, and some among Wall Street see further downside ahead.
The Analyst
Goldman Sachs' Joe Ritchie downgraded Johnson Controls' stock rating from Neutral to Sell with a $35 price target.
The Thesis
Johnson Controls' stock has fallen around 8 percent since the start of 2017 which makes it a notable underperformer versus the average 25 percent among peers under Ritchie's coverage, the analyst said in an industry-wide research report. (See Ritchie's track record here.)
But many of the issues which plagued the stock throughout 2017 are likely to continue into 2018.
The issues, according to Goldman Sachs, include:
An earnings per share growth that will likely trail its peers at 7 percent in fiscal 2018 versus an average of 11 percent for its peers.
Expectations for a 2.4-percent organic growth rate versus a group average of 4 percent.
A "subpar" free cash flow conversion.
A below-average CROCI, or cash return on capital invested.
"We would be more positive on the shares if JCI improved its working capital metrics, organic growth accelerated (especially in buildings), higher cost-outs drove better incremental margins and/or JCI conducted accretive portfolio actions," the analyst said.
Price Action
Shares of Johnson Controls were trading lower by more than 0.5 percent Friday morning.
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Latest Ratings for JCI
Dec 2017 | Goldman Sachs | Downgrades | Neutral | Sell |
Nov 2017 | Susquehanna | Downgrades | Positive | Neutral |
Nov 2017 | Oppenheimer | Maintains | Outperform |
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