A former auto-supply company has shed parts of its business and merged with another successful company to reinvent itself. The newly formed company is strong, diversified, and today’s Stock of the Week.
Johnson Controls International plc (JCI) is the new name for the former Johnson Controls Inc. since its recent merger with Tyco International—which combined the world’s biggest provider of building systems and equipment with the world’s largest maker of fire and security products.
Before the merger, Johnson Controls had been largely an automotive-parts supplier, but it has spun off its car seats and interiors division and is now a better-diversified industrial company. It still is in the car business as the world’s largest maker of lead-acid batteries—and also is a major manufacturer of the increasingly popular stop-start batteries for engines that shut off at traffic lights and then restart, saving fuel. And Tyco’s market-leading fire and security businesses are good complements to Johnson’s building-management business, which provides automation and optimization of heating and air-conditioning systems, lighting, etc., as well as renewable energy and water-conservation solutions.
The spinoff and adjustments from the merger will cause declines in revenue and earnings for fiscal 2017, but the combined company is now a strong, well-diversified one that should grow steadily as it integrates its business lines and takes advantage of operating synergies. Revenue of $37.7 billion in fiscal 2016 will likely drop to $30.3 billion for fiscal 2017, then rise to $31.9 billion in fiscal 2018. The dividend of $1/share/yr. recently yielded 2.36% and appears secure.
Earnings per share: 2018 est./$3.20… 2017 est./$2.70… 2016/$3.98. (Fiscal year ends September 30.)
This Week’s Expert
Roger Hamilton is senior managing director, investments, Manulife Asset Management, and portfolio manager of the $1.7 billion John Hancock Balanced Fund (SVBAX), Boston. JHFunds.com