Why Did Johnson Controls Rise on September 6?

Johnson Controls (JCI) has a market cap of $31.5 billion. It rose by 2.4% to close at $48.90 per share on September 6, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 0.72%, -1.6%, and 43.0%, respectively, on the same day. JCI is trading 9.7% above its 20-day moving average, 10.4% above its 50-day moving average, and 21.0% 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 8.4% on September 6.

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

• Honeywell International (HON) — $88.3 billion
• Raytheon (RTN) — $41.6 billion
• Lear (LEA) — $8.6 billion

Johnson Control has completed a merger with Tyco and the new company will provide products, technologies, and integrated solutions for the buildings and energy sector. The company reported that “with $30 billion in revenue and 117,000 employees (following the anticipated spinoff of the Adient automotive business in October), this powerful combination brings together best-in-class product, technology and service capabilities across controls, fire, security, HVAC[1. heating, ventilation, and air conditioning] and energy storage, to serve the full spectrum of end markets including large institutions, government, commercial buildings, retail, industrial, small business and residential. Tyco and Johnson Controls’ buildings platforms create immediate opportunities for growth through cross-selling, complementary branch and distribution channel networks, and expanded global reach for established businesses. ”

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 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. Next, we’ll discuss General Motors (GM).