Give JCI Some Respect

 | Jan 22, 2013 | 7:00 AM EST
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Johnson Controls (JCI) shares have gone nowhere lately.

This year they are up a little more than 1% through Friday (including dividends) while the Standard & Poor's 500 Index is up more than 4%. Last year Johnson Controls returned less than 1% while the S&P 500 returned 16%. The Milwaukee manufacturer gets little respect today. 

But it should.

It you lift your eyes from a short-term view to the long term, Johnson Controls has an amazing record.

Since the end of 1981, Johnson Controls has had 16 years in which its stock advanced 20% or more. Its compound annual return through the end of 2012 was 14.4%, compared to 11.2% for IBM (IBM), 11% for the S&P 500 and 9.6% for Merck (MRK).

Thirty Wall Street analysts follow Johnson Controls, but fewer than half of them rate it a Buy.

I think it is a Buy. For the fiscal year in progress, which will end in September, analysts peg earnings at $2.61 a share. That would be a record for this old-line industrial company, which makes auto parts and HVAC (heating, ventilation and air conditioning) equipment systems.

At $31.50 a share, Johnson Controls stock fetches less than 12x that figure. 

What's more, the consensus of analysts calls for the company to increase earnings 19% in fiscal 2014 and another 17% in fiscal 2015. And yet, that's not enough for most analysts to recommend the stock.

To me, this is a good example of the cynical but true observation that an increase in analysts' Buy recommendations generally happens after an increase in the stock price.

The Wisconsin company operates in two markets -- autos and construction -- that seem likely to improve over the next two years. Car sales are already improving and the average car on the road is a wheezy 11 years old. Johnson makes car doors, seats, instrument panels and batteries, among other parts.

Home construction is already picking up, after a severe five-year decline and I believe commercial construction will also perk up.

Warren Johnson, a professor a Wisconsin State Normal School, invented the thermostat around 1883 and helped found Johnson Controls in 1885. The company is 127 years old, but it's not sleepy, and the stock, in my opinion, is timely.



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