Boring Stocks Need Love, Too

07/22/2011 3:15 pm EST


Jim Jubak

Founder and Editor,

After moving up 8% in the days before its third-quarter earnings report, it would have taken something very special to keep shares of Johnson Controls (JCI) climbing on the actual news.

Didn’t happen. On July 20, the company merely reported record net sales of $10.4 billion, a 21% gain from the third quarter of 2010, and beat Wall Street projections of 54 cents a share by a meager 4 cents a share. And so the stock dropped 4.4% on the day.

Might not be a bad time to pick up shares of a company projected to grow earnings by 24% in fiscal 2011 (which ends in September 2011)—and 35% in fiscal 2012—but trading at just 17.7 times trailing 12-month earnings and 12 times projected earnings per share. (The stock is a member of my Jubak’s Picks portfolio.)

Johnson Controls had two problems with its earnings report:

  • First, the company had to argue that supply-chain disruptions from the Japanese earthquake and tsunami made adjusted numbers more accurate than the typical GAAP numbers. Johnson Controls figured that the disruptions cost it $400 million in sales.
  • And second, the company guided fourth-quarter earnings (after excluding one-time items) inline with Wall Street expectations of 80 cents a share. Of course that would be a nifty 38% increase in earnings per share from this quarter, but I guess that’s disappointing to any analyst who expects a company to always raise projections.

Anyway, the company’s growth was strong across all its segments. Automotive experience sales—what you and I might call auto interiors—grew by 21% in the quarter from the third quarter of 2010. Power solutions—battery—sales rose 22%. Building efficiency—heating, cooling, and building energy-management systems—grew sales by 21%.

Boring, huh?

Not so boring was Johnson Controls' China story. The company already has a 45% share of the auto-seating market in China right now, and looks to be able to increase that share in upcoming quarters. In its conference call Johnson Controls said it will meet its goal of $4 billion in sales in China this year.

Projections of slower growth in the United States in the rest of 2011 suggest that Johnson Controls might take a little longer to meet my target price of $54 a share that I had projected for December. As of July 21, I’d calculate a target price of $55 by March 2012.

Full disclosure: I don’t own shares of Johnson Controls in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. The fund did own shares of Johnson Controls as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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