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Will Johnson Controls (JCI) Stock Disappoint in Q3 Earnings?

Johnson Controls International plc JCI is set to report third-quarter 2017 (ended Jun 30, 2017) results on Jul 27 before the market opens.

Last quarter, the company reported in-line results. In fact, the company beat earnings estimates in three out of the trailing four quarters, delivering an average positive surprise of 5.59% during this period.

The long-term earnings per share growth (3–5 years) for the company is currently pegged at 12.62%.

Johnson Controls’ shares have gained 7.3% year to date, underperforming the 11% rally of the industry it belongs to.

Let’s see how things have shaped up for the forthcoming announcement.

Factors Influencing this Quarter

For Johnson Controls, the divestiture of several businesses is negatively impacting the company’s revenues and profits. In Mar 2017, the company signed a definitive agreement to sell its Scott Safety business to 3M. In Mar 2017, the company also completed the divestiture of its ADT South Africa business. In Oct 2016, Johnson Controls completed the spin-off of its Automotive Interiors business into an independent, publicly traded company, Adient. These may have some adverse effect on third-quarter results.

Also, deconsolidation of the automotive interiors business and negative foreign currency translation is affecting Johnson Controls’ results. Revenues in the first half of fiscal 2017 were also adversely affected due to foreign currency translations. This trend is likely to continue in third-quarter 2017 too.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Johnson Controls this quarter. This is because a stock needs to have both a positive">Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Johnson Controls has an Earnings ESP is -1.39% because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 71 cents and 72 cents, respectively.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Johnson Controls carries a Zacks Rank #4 (Buy).

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks that Warrant a Look

Here are a few auto companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Cummins Inc. CMI has an Earnings ESP of +3.1% and a Zacks Rank #2. The company is expected to report second-quarter 2017 results on Aug 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Horizon Global Corporation HZN has an Earnings ESP of +2.99% and a Zacks Rank #3. The company’s second-quarter 2017 financial results are expected to release on Aug 1.

Tenneco Inc. TEN has an Earnings ESP of +1.67% and a Zacks Rank #3. The company’s second-quarter 2017 financial results are expected to release on Jul 28.

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