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4 Catalysts To Drive EPS Growth For Johnson Controls

4 Catalysts To Drive EPS Growth For Johnson Controls|NYSE:JCI

In a research report released on Monday, Goldman Sachs outlined four catalysts that could drive earnings per share growth at Johnson Controls International plc Ordinary Share JCI 0.57%. The firm initiated coverage of the company at Buy with a 12-month price target of $46.

Analyst Joe Ritchie mentioned differentiated organic growth, synergies, improving free cash flow and attractive valuation as the four catalysts.

The analyst estimates 2017/2018 organic growth of 3–4 percent, above the 1–2 percent average run rate for his coverage universe. According to the analyst, the exposure of the company is more nuanced than just auto/non-residential, as new construction represents less than 25 percent of non-residential activity and its battery business is tied to a secular shift from traditional lead acid to AGMs.

Related Link: Cramer Gives His Opinion On Johnson Controls, ConforMI, Zimmer Biomet, SemGroup And T. Rowe Price

Goldman said its analysis of industrial deal implies average cost efficiency of about 6–7 percent. The firm noted that about 3/4th of its incremental EBIT through 2019 is driven by operational improvements, with organic growth contributing very little.

The firm commended the improvement in free cash flow, even as the metric is not as strong as its peers. Despite investor concerns on peaking non-residential construction and auto cycle weighing on the shares of the company, Goldman believes the strong EBIT growth and improving returns warrant a higher multiple.

At last check, Johnson Controls was up 1.23 percent at $44.60.

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DateFirmActionFromTo
Oct 2016Goldman SachsInitiates Coverage OnBuy
Oct 2016BairdInitiates Coverage OnOutperform
Sep 2016Cowen & Co.Initiates Coverage onOutperform

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