Is Johnson Controls International PLC (NYSE: JCI) a mixed bag of success and rising challenges? The company's challenging past few quarters and roller-coaster stock price may cause you to wonder whether you should put the brakes on considering this company as an investment opportunity. However, it's worth taking a look at both sides of the coin — the positive aspects of the company's fundamentals as well as the possible downsides of investing in the Ireland-based manufacturer.
Despite increasing demand, the company has been tamped down by supply chain constraints and other significant elements impacting the company, including its dubious dividend payout amount.
Let's take a quick look at an overview of the company and the pros and cons of investing in Johnson Controls International PLC.
About Johnson Controls International
Johnson Controls International PLC, headquartered in Cork, Ireland, manufactures building products and systems worldwide for engineering, manufacturing, commissioning, and retrofitting.
Warren S. Johnson, a professor at the Whitewater Normal School created a patent in 1883 for the first electric room thermostat and incorporated the Johnson Electric Service Company in 1885 to manufacture, install and service automatic temperature regulation systems for buildings. The company shifted to the temperature control business for nonresidential buildings in 1911. In 1970, the company took over the Standard Electric Time Company, renamed Johnson Controls in 1974. In 1985, the company took over Hoover Universal and Ferro Manufacturing.
The company's digital offering is called OpenBlue, which the company describes as a "complete suite of connected solutions that delivers impactful sustainability, new healthy occupant experiences and respectful safety and security." It offers AI-powered service solutions that include building remote diagnostics, predictive maintenance, compliance monitoring, advanced risk assessments and more for workplaces, hospitals, schools, campuses, stadiums and other types of buildings.
The company designs, sells, installs and services the following types of systems:
- Air conditioning
- Building management
- Integrated electronic security
- Integrated fire detection and suppression
- Fire protection
- Security products
- Controls software and software services
The company is a leader in smart, healthy, and sustainable buildings to serve people, spaces they inhabit and overall, the planet. The company creates systems in health care, schools, data centers, airports, stadiums and manufacturing.
Pros and Cons of Investing in Johnson Controls International
What are the benefits of investing in Johnson Controls International? Let's take a look at the benefits of investing in the company.
- Strong investment rationale: The company's digital offerings as well as its ability to help businesses reach emissions targets. The COVID-19 pandemic encouraged more companies to maintain clean, germ-free, well-ventilated buildings in line with Johnson Controls' available offerings.
- Sales increases: The company reported Q3 sales of $6.6 billion, an increase of 4% compared to the prior year on an as reported basis and 8% organically. Other factors include GAAP net income from continuing operations at $379 million, though adjusted net income from continuing operations of $594 million was flat compared to last year.
- Undervalued stock: Johnson Controls International stock fell from $81.31 at the end of December 2021 to $46.30 at its lowest over the past year. After the continual stock plummeting, you may consider these downward ticks as a downside of investing in the stock. However, the drop has actually put Johnson Controls in a position where it is considered undervalued, which means that you may be able to benefit from stock increases in the future if you invest now.
It's worth considering the downsides of a potential investment in Johnson Controls International PLC as well:
- Supply chain and shortages: The company has not necessarily overcome supply chain issues and component shortages. If the company cannot ship products, margin will be impacted — the results affecting full-year earnings and margin guidance this year.
- Stock declines: It's worth putting stock declines in the "cons" column as well. The company's stock has lost value to the tune of 42% in 2022. The changes in such a short time may put an edge on the nerves of dividend-seeking investors as well as those who seek value as well.
- Unsustainable dividend: Johnson Controls International pays an annual dividend of $1.40 per share and has a dividend yield of 2.46%. The dividend yield represents a dividend higher than the bottom 25% of all stocks that pay dividends. However, it pays out 94% of its earnings in the form of a dividend, which puts up the argument that it may not have sufficient earnings to cover its dividend payment at the current amount in the future.
- Slow earnings growth: The company did post higher earnings this past quarter, but it has come in slow waves. However, it's true that supply chain backlogs will resolve themselves eventually and should reverse the company’s fortunes.
Will Rising Challenges Hurt the Company for Dividend Investors?
In its Q3 results at the beginning of August, Johnson Controls International showed positive promise, not to mention that its stock price looks like it's on the uptick for now despite finding itself in a 25% hole year-to-date. Research analysts have given the stock a "hold" rating, while at the same time, 10 research analysts have given the stock a "buy" rating. MarketBeat says the company has a consensus rating of "moderate buy" as well as a consensus target price of $67.71.
From a certain angle, Johnson Controls International PLC might look like a heap at the bottom of the stock market pile after continual dashes to the stock price. It's important to note that Johnson Controls International has only been increasing its dividend for two years. If you think of investing in an undervalued stock as an opportunity, it may be a more interesting approach.
If you're a positive thinker, the company may offer post-COVID-19 benefits from a different perspective: If you consider investing in it because you think it's undervalued, you may have hit on an entirely different perspective altogether.