Johnson Controls (JCI) Stock Soaring on Possible Automotive Business Separation

NEW YORK (TheStreet) -- Shares of Johnson Controls (JCI) are higher by 5.68% to $54.49 on heavy volume in late morning trading on Wednesday, after the diversified tech company announced it is looking into the possibility of separating its automotive business.

"Today's announcement continues our strategy of proactive portfolio management to drive focus on strategic product-oriented businesses where we can be a global market leader, drive more profitable growth and deliver maximum long-term value for our customers and shareholders," company CEO Alex Molinaroli said in a statement.

The company's automotive experience business is one of its three operating segments. Through this business Johnson Controls designs and manufactures door panels, seats for cars and light trucks, and other products, The Wall Street Journal reports.

The company is the largest seat maker in the world and the unit brought in $17.5 billion in sales last year, The Journal noted.

Johnson Controls has "no specific timetable" for the complication of its strategic review. The company said it is looking into a "full range" of strategic options for the automotive business but didn't go into detail about what those options are.

Goldman Sachs and Centerview Partners are serving as the company's financial advisors for the review.

Separately, TheStreet Ratings team rates JOHNSON CONTROLS INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate JOHNSON CONTROLS INC (JCI) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • JOHNSON CONTROLS INC has improved earnings per share by 11.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, JOHNSON CONTROLS INC increased its bottom line by earning $2.05 versus $1.57 in the prior year. This year, the market expects an improvement in earnings ($3.40 versus $2.05).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Auto Components industry. The net income increased by 102.7% when compared to the same quarter one year prior, rising from $261.00 million to $529.00 million.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • The debt-to-equity ratio is somewhat low, currently at 0.72, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.46 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.9%. Since the same quarter one year prior, revenues slightly dropped by 2.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • You can view the full analysis from the report here: JCI Ratings Report

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