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No matter whether the source is fossil fuels or alternative energy, analysts agree that energy demand is set to rise through the end of this decade. Artificial intelligence (AI), machine learning, and cloud computing are all expected to be key drivers of higher energy demand and consumption, as highlighted by Friday's news that Constellation Energy (CEG) is set to bring Three Mile Island back online under a new mantle to power data centers for Microsoft (MSFT).
Against this backdrop, here's one undervalued industrial dividend stock that could benefit from this megatrend.
About Johnson Controls Stock
Valued at $50 billion, Johnson Controls International (JCI) is a diversified industrial tech company involved in the engineering, development, manufacturing, and installation of HVAC, security, automation, and safety systems. They design, sell, install, and service heating devices, ventilators, air conditioners, automation devices, chillers and refrigerators, security and fire protection systems, and more. JCI operates in 4 main segments: Building Solutions North America; Building Solutions Asia Pacific; Building Solutions EMEA/LA; and Global Products.
A member of the S&P 500 Index ($SPX), JCI has outperformed the benchmark with its performance in 2024. JCI is up 28.6% on a YTD basis, compared to the SPX's 19.6% return. Over the past 52 weeks, JCI has gained 31.1%.
JCI pays a quarterly dividend of $0.37, or $1.48 on an annualized basis. That translates to a dividend yield of about 2% at current levels, backed by a sustainable payout ratio of 42.5%.
Johnson Controls Reports Strong Cash Flows
Johnson Controls reported its fiscal third-quarter results on July 31, where it posted a profit of $975 million, or $1.14 per share on an adjusted basis. That outperformed analysts' $1.08 per share estimate. Revenue of $7.23 billion fell narrowly short of Wall Street's forecast.
Cash from operating activities totaled $1 billion during the quarter, with free cash flow of $922 million and adjusted free cash flow of $1.3 billion.
During the quarter, JCI paid out roughly $249 million in dividends, and repurchased approximately $402 million worth of common stock.
For its fiscal Q4, management expects organic sales growth of 7% year over year, with adjusted EPS of $1.23 to $1.26. For the full year, JCI expects adjusted EPS of $3.66 to $3.69, narrower than its prior guidance of $3.60 to $3.75.
Analysts Get More Bullish on JCI Stock
Analysts have grown more upbeat on JCI lately, which has an average rating of “Moderate Buy” from 20 analysts in coverage. The stock has 10 “Strong Buys," 10 “Holds," and zero “Sells” - an improvement from three months ago, when there were just 8 “Strong Buys” and 1 “Sell” among the rankings.
Recently, Bank of America (BAC) analyst Andrew Obin upgraded his rating on the stock from “Neutral” to “Buy,” along with a price-target hike to $80 from $76. The analyst says that JCI offers investors exposure to “best-in-class data center assets,” and notes that the stock trades at a discount of up to 57% relative to some of its HVAC peers. Plus, Obin thinks a new CEO could be another positive driver.
Separately, RBC Capital raised its “Sell” equivalent to a “Hold” last month, crediting JCI's “evidently constructive dialogue” with Elliott Management for yielding focused, strategic changes.
JCI ended last week not far from its average 12-month price target of $75.37, while the Street-high price target of $89 suggests that the stock could gain up to 20.1%.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
