Johnson Controls Accelerates Despite Supply Chain Disruption, Sterne Agee Maintains Buy

Sterne Agee has published a research report on Johnson Controls, Inc. JCI following concerns over the global auto supply chain. In the report, Sterne Agee writes "We believe Johnson Controls is uniquely positioned to significantly advance global energy efficiency through building retrofits, which can achieve 20%-40% reduction in energy consumption and rapid global adoption of Start-Stop battery technology, which has the potential to deliver significant fuel savings (6%-10% or more depending on vehicle use). These are not fuzzy concepts with murky paybacks or insurmountable structural issues to implementation, but tangible solutions offering positive net NPVs. The result is that JCI's Building Efficiency and Power Solutions growth prospects are likely being underestimated by the market, in our view. We think these segments (~65% of EBIT) could grow operating income in the mid-20s (vs. mid-to upper-teens expectation) through mid-decade. So even if the Automotive Experience segment income grows at half (~10%) what a normal cyclical recovery might produce (~20%), we still end-up with a ~20% consolidated operating income growth rate through mid-decade vs. current P/E of 15x FY11 and 12.5x FY12 consensus. Viewed from this perspective JCI shares are not fairly valued as recent initiations have asserted, but undervalued with the likely fading of near-term concerns and increased emphasis on Energy Efficiency acting in concert as catalysts for outperformance over the next 12-months." Sterne Agee maintains its Buy rating and $52 price target. Johnson Controls, Inc. closed Friday at $39.50.