Stock Strategist

Can a Power-Less Johnson Controls Unlock Shareholder Value?

Brian Bernard, CFA, CPA

 Johnson Controls (JCI) announced in March that it is exploring strategic alternatives for its power solutions business. Power solutions is the leading global manufacturer of automotive lead-acid batteries, having shipped approximately 154 million of them in 2017. The divestiture of this business adds to Johnson Controls’ transformation story; less than two years have passed since the company merged with Tyco International and spun off its automotive seating business (now known as Adient (ADNT)), and Johnson Controls is still working diligently to fully realize the $1.2 billion synergy target it set after completing the Tyco merger.

When we first considered the possibility of power solutions’ divestiture, we had mixed feelings. On one hand, power solutions is faster growing and more profitable than Johnson Controls’ building technologies and solutions segment. On the other hand, Johnson Controls’ stock performance since the Tyco merger and Adient spin-off has been very disappointing, so we’d support a divestiture if it can create shareholder value. Moreover, we see more positive than negative implications for Johnson Controls operating as a pure-play building technologies company.

Brian Bernard, CFA, CPA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.

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