This Firm Remains A Long-Term Buyer Of Johnson Controls

• Shares of Johnson Controls Inc (NYSE: JCI) have been volatile in 2015 and are down 6 percent year-to-date.
• Baird’s David Leiker maintained an Outperform rating on the company, while reducing the price target from $58 to $56.
• The company’s ROIC is unlikely to be driven by existing business, rather by several other organic growth margin drivers and acquisition opportunities, Leiker said.

Analyst David Leiker mentioned that Johnson Controls’ stock valuation is set to improve once the company completes the spin-off of JCI-Auto in October 2016.

Leiker believes that long-term buyers are expecting Johnson Controls’ stock to trade sideways until investors become comfortable with the SOTP value of the two companies. The two parts of the company - JCI-Industrial and JCI-Auto - are worth more than the current stock price.

“We believe the incremental steps to gain confidence are the JCI–Auto deep dive at the Detroit Auto Show in early January followed by the SEC Form 10 filing in March/April,” the Baird report noted.

Johnson Controls’ Building Efficiency business is expected to record market growth of 6 percent annually through 2020. This division’s growth is expected to be driven by its diverse product portfolio and leadership position.

The company’s Power Solutions business is expected to record market growth of 7 percent annually through 2020, given its global product leadership and high growth manufacturing scale and process technologies.

Johnson Controls’ Industrial business is well positioned to pursue additional opportunities "including smart buildings, connect home, industrial and air handling in Building Efficiency and industrial, stationary power and non-auto transportation batteries" in its Power Solutions business, Leiker mentioned.

Apart from organic investments, acquisitions in these areas also offer attractive growth opportunities for the company, the analyst stated.