A $35.0-Billion Company Poised for Growth?

institutional investorsWall Street analysts are warming up to Johnson Controls, Inc. (JCI), and it’s understandable why. I’ve been bullish on this stock for some time now. The company has strong earnings visibility going into next year, and management recently bumped its quarterly dividend payment significantly higher.

Even though the stock is up about 50% over the last 12 months to a new record high, the company’s 16% dividend increase and new $3.65-billion share buyback program is exactly what institutional investors want. Earnings expectations for Johnson Controls are increasing across the board. (See “If You Don’t Want to Leave This Market, Stick with These Proven Winners.”)

One of the most prolific trends in the stock market over the last few years has been the strong performance of dividend-paying blue chips. Many brand-name, old economy companies have been trading like fast-growing technology stocks.

The marketplace has craved the relative safety, earnings stability, and dividends from corporations whose balance sheets were only getting stronger. It’s a trend that I think is far from over, and it’s why I’m a fan of existing winners. Johnson Controls’ two-year stock chart is featured below:

Johnson Controls, Inc Chart

Chart courtesy of www.StockCharts.com

Any Wall Street enthusiasm for this company is based on a solid earnings outlook and the continued strong performance in automobile manufacturing.

Johnson Controls manufactures seats, doors, instrument panels, and all kinds of vehicle electronics. Management is thinking about selling its electronics business that’s related to the automotive market. This business segment is relatively small compared to the company’s manufacturing of seating components.

In its 2009 fiscal year, the company paid dividends of $0.52 per share; revenues were $28.5 billion; and the company incurred a loss of $661 million.

Fast-forward to this past fiscal year, which just ended on September 30, 2013, and the company paid out $0.76 per share in annual dividends; revenues were $42.7 billion; and earnings came in at $1.2 billion.

While Johnson Controls was founded by Warren Johnson, a college professor who installed his own thermostats in classrooms, the company now has a great deal of exposure to the automotive manufacturing market (particularly in seating with $16.3 billion in global sales in the most recent fiscal year).

Johnson Controls has already appreciated substantially on the stock market, but I can see this position ticking higher still, as current expectations are for a 17%–18% gain in the company’s earnings this fiscal year.

The company’s cash position is going up, long-term debt is down from the previous fiscal year, and another dividend increase would not be a surprise.

While Johnson Controls isn’t a growth story in terms of sales, it is in terms of earnings. Like so many other corporations over the last several quarters, bottom-line growth is happening on mediocre sales because operations are about as lean as they can be.

Johnson Controls is a dividend-paying stock that can leverage the strength in the automobile manufacturing sector near-term. This is a stock poised for more capital gains.