Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Ford Motor Company (F), General Motors Company (GM): Is Johnson Controls, Inc. (JCI) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Johnson Controls, Inc. (NYSE:JCI) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

Johnson Controls Inc (NYSE:JCI)

What we’re looking for
The graphs you’re about to see tell Johnson Controls, Inc. (NYSE:JCI)’s story, and we’ll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Johnson Controls, Inc. (NYSE:JCI)’s key statistics:

JCI Total Return Price Chart

JCI Total Return Price data by YCharts

Passing Criteria Three-Year* Change Grade
Revenue growth > 30% 27% Fail
Improving profit margin (37.5%) Fail
Free cash flow growth > Net income growth (25.4%) vs. (20.6%) Fail
Improving EPS (23.9%) Fail
Stock growth + 15% < EPS growth 60.9% vs. (23.9%) Fail

Source: YCharts. * Period begins at end of Q2 2010.

JCI Return on Equity Chart

JCI Return on Equity data by YCharts

Passing Criteria Three-Year* Change Grade
Improving return on equity (38.8%) Fail
Declining debt to equity 38.8% Fail
Dividend growth > 25% 46.2% Pass
Free cash flow payout ratio < 50% 49.8% Pass

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we’re going
Things don’t look good for Johnson Controls, Inc. (NYSE:JCI) today. The auto-parts manufacturer musters only two out of nine passing grades, and both of those were earned on dividend metrics that might soon be threatened as well. Despite this broad-based financial weakness, Johnson’s shareholders have enjoyed solid growth over the past three years. Is this rebound sustainable, or will Johnson’s fundamentals catch up to it in the end? Let’s take a closer look.

Johnson Controls, Inc. (NYSE:JCI)’s building efficiency and automotive experience business outperformed in the Asia-Pacific region during its most recently reported quarter, but sluggish economic growth in the United States and ongoing weakness across Europe has impeded the company’s progress. Fool contributor Sean Williams notes that a recent slowdown in government spending could further hinder Johnson’s U.S. business. With both India and China now expected to slow down in the coming quarters, the company can ill afford to endure Western weakness for much longer.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.