Johnson Controls stock rating cut to Perform by Oppenheimer on valuation

Investing.com - Oppenheimer downgraded Johnson Controls (NYSE:JCI) from Outperform to Perform on Friday, citing the stock’s valuation that has reached historical highs. The $68 billion market cap company currently trades at a P/E ratio of 31, with the stock price of $103.48 sitting just 1% below its 52-week high of $105.19. According to InvestingPro analysis, the stock appears to be trading above its Fair Value.

The research firm noted that Johnson Controls shares have outperformed peer averages both quarter-to-date and year-to-date, pushing the valuation to levels that now imply faster improvement in financial performance compared to consensus expectations. The stock has delivered impressive returns of 31.7% year-to-date and 54.7% over the past year. InvestingPro data reveals the company maintains a perfect Piotroski Score of 9, with 12 additional key insights available to subscribers.

Oppenheimer analyst Noah Kaye explained the decision to move to the sidelines pending outcomes from the company’s ongoing strategic review, which is being led by the CEO and guided by lean and customer-centric principles.

The current valuation appears to reflect improving growth prospects under Johnson Controls’ streamlined operating model, according to the research note issued Friday morning.

The downgrade also considers potential levers for shareholder value creation that might emerge from the strategic review, though Oppenheimer indicated it would await further details before reconsidering its rating.

In other recent news, Johnson Controls announced a $9 billion share repurchase program, adding to the $1.1 billion remaining from its previous authorization. The company expects to deploy approximately $5 billion over the next three to six months. Additionally, Moody’s upgraded Johnson Controls’ senior unsecured ratings to Baa1 from Baa2, citing improved EBITDA margins and cash generation. Moody’s also noted the company’s significant scale and diverse customer base in the commercial HVAC and building controls sectors. Meanwhile, UBS maintained its buy rating on Johnson Controls, projecting a 70% earnings upside from fiscal year 2025 through fiscal year 2028. This projection is attributed to structural margin improvements and robust capital returns. However, Oppenheimer downgraded Johnson Controls to Perform from Outperform, awaiting further details on the company’s strategic review. Lastly, Johnson Controls has realigned its organizational structure from four to three reporting segments to better reflect its operations and growth strategy.

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