Johnson Controls Stream Weakens

Johnson Controls, Inc.'s (JCI) cost-reduction efforts, accretive acquisitions and healthy operating cash flows are driving the stock. Further, JCI commands a strong position in its markets. The company has started benefiting from the York acquisition and will further profit as it begins to integrate the Delphi Battery business.

However, with the Plastech joint venture, the company is expected to incur high restructuring expenses, which would affect earnings negatively. JCI also reduced earnings guidance by 5% to 6% for 2008. A weakening product mix and raw material/price squeeze along with a weak domestic automotive market leads us to rate the stock a Hold with a target of $28.50.

JCI is gaining market share in the seating, interior and battery categories in the automotive sector. The company s global market share is 12% and in the global seating market specifically, its share is 25%. The battery business is set to grow from new hybrid wins and the company is adding capacity to meet this demand.

In the Power Solutions segment, JCI has received three lithium-ion battery contracts. There are only three contracts available in the industry excluding Toyota (TM), and JCI has been awarded all three. The company expects a lithium-ion battery ready for production by 2010 to be used in the gasoline electric hybrid vehicles.

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