Reasons Why You Should Avoid Betting on Johnson Controls (JCI)
Johnson Controls International plc JCI has failed to impress investors with its recent operational performance due to weakness in the Global Products and Building Solutions Asia Pacific segments, rising costs and foreign-currency headwinds. These factors are likely to impede JCI’s earnings in the quarters ahead.
Let’s discuss the factors that might continue taking a toll on this Zacks Rank #4 (Sell) company.
Business Weakness: The slowdown in the residential market has been weighing on the Global Products segment. The segment’s revenues declined 2% year over year in the fourth quarter of fiscal 2023 (ended September 2023). Also, in the face of challenging market conditions in China, the Building Solutions Asia Pacific segment’s Install business experienced a significant downturn in the fiscal fourth quarter. Due to this reason, the segment’s sales plummeted 7.2% in the final quarter of fiscal 2023.
Steep Costs: Over time, JCI has been coping with the adverse impacts of the high cost of sales. In fiscal 2023, the company’s cost of sales increased 5.1% year over year. High commodity prices due to inflationary pressure are pushing up the cost of sales.
Forex Woes: Given its widespread presence in international markets, Johnson Controls is exposed to unfavorable foreign currency movements. Adverse foreign currency translations impacted the company’s top line to the tune of $616 million in fiscal 2023.
Potential Risks from Competition: Johnson Controls’ products and operations are excessively reliant on information technology infrastructure, creating increased cyber security risks, which could materially impact its competitive position. Moreover, stiff competition from other building systems providers is a hindrance for Johnson Controls.
Southbound Estimate Revisions: In the past 60 days, the Zacks Consensus Estimate for JCI’s fiscal 2024 (ending September 2024) earnings has been revised 6.5% downward.
Price Performance: Shares of the company have declined 14.6% in the past year against the industry’s 2% increase.
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Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Flowserve Corporation FLS presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 27.3%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2023 earnings has increased 2.5%. The stock has risen 35.3% in the past year.
Applied Industrial Technologies, Inc. AIT presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 13.9%.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has increased 3.3% in the past 60 days. Shares of Applied Industrial have jumped 36.2% in the past year.
A. O. Smith Corporation AOS currently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 14%.
In the past 60 days, the Zacks Consensus Estimate for A. O. Smith’s 2023 earnings has improved 4.7%. The stock has risen 42.7% in the past year.
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Johnson Controls International plc (JCI) : Free Stock Analysis Report
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
Flowserve Corporation (FLS) : Free Stock Analysis Report
Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
