Moody’s Upgrades Johnson Controls’ Senior Unsecured Rating

Johnson Controls (JCI) has a market cap of $28.1 billion. It fell by 0.34% to close at $43.88 per share on August 31, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -0.88%, -2.4%, and 13.5%, respectively, on the same day. JCI is trading 1.7% below its 20-day moving average, 0.86% below its 50-day moving average, and 8.7% above its 200-day moving average.

The Vanguard Large-Cap ETF (VV) invests 0.15% of its holdings in Johnson Controls. The ETF tracks a market-cap-weighted index that covers 85% of the market capitalization of the US equity market. The YTD price movement of VV was 7.6% on August 31.

The market caps of Johnson Controls’ competitors are as follows:

• Honeywell International (HON) — $88.8 billion
• Raytheon (RTN) — $41.6 billion
• Lear (LEA) — $8.3 billion

Moody’s Investors Service has downgraded Tyco International Finance’s senior unsecured rating from “A3” to “Baa1” and upgraded Johnson Controls’ senior unsecured rating from “Baa2” to “Baa1.” Moody’s affirmed the short-term rating of “P-2” for both companies.

Also, Moody’s gave Tyco International Holdings’ senior unsecured a rating of “Baa1” and a short-term rating of “P-2.” Moody’s gave a “stable” outlook to all issuers.

Moody’s reported that “Tyco and Johnson Controls are expected to close their merger on or about September 2, 2016.” It added that “Moody’s believe that the combination of Tyco’s fire and security and JCI’s building efficiency businesses will improve the competitive position and earnings of these businesses, as benefits from integration are realized with passing time.”

Johnson Controls reported 3Q16 net sales of $9.5 billion, a fall of 1.0% from the net sales of $9.6 billion in 3Q15. Sales from its Building Efficiency and Power Solutions segments rose by 33.0% and 3.1%, respectively. Sales from its Automotive Experience segment fell by 19.3% between 3Q15 and 3Q16. The company’s gross profit margin rose by 12.9%, and its income from continuing operations before income taxes fell by 11.0%.

Its net income and EPS (earnings per share) rose to $383.0 million and $0.59, respectively, in 3Q16, compared with $178.0 million and $0.27 in 3Q15. JCI’s cash and cash equivalents fell by 21.8% and its inventories rose by 25.0% between 4Q15 and 3Q16. Its current ratio and long-term debt-to-equity ratio fell to 0.92x and 0.54x, respectively, in 3Q16, compared with 1.0x and 0.55x in 4Q15.

Johnson Controls has made the following projections:

• EPS of $3.95–$3.98 per share for fiscal 2016, which reflects a strong operational performance
• EPS of $1.17–$1.20 for fiscal 4Q16

This guidance doesn’t include the impact of the Tyco merger and transaction, integration and separation costs, year-end pension and post-retirement mark-to-market adjustments, or other nonrecurring items. In the next part, we’ll take a look at Greif (GEF).