Monday, April 23, 2007

Calls of Note Part 1

Couple of tier-1 firms have some interesting comments on Johnson Controls (NYSE:JCI) after the co released stronger than expected Q1 results on Friday:

- Banc of America is raising their FY2008 and FY 2009 EPS estimates to $7.55 and $9.25 from $7.20 and $8.55 and are now 6% and 18% ahead of the FY2008 and FY2009 First Call mean. The higher estimates reflect firm's belief that Building Efficiency margins expand to 8.5% (previously 7.5%) by the end of the decade. While corporate margins should move from an all-time low to an all-time high over the next 10 quarters, they believe their model is still conservative in many aspects. BAC's 12 month target goes to $135 from $120 and they reiterate the Buy.

- Goldman Sachs notes they increasingly see the Building Efficiency segment as JCI's primary growth engine, as it leverages cross sell opportunities through York, particularly in higher margin services, and as it reaps the benefits from efficiency gains in York's manufacturing footprint. A growing amount of "green" option value also exists, in firm's view, especially if regulation around building energy consumption levels gains traction. GSCO's tgt goes to $115 from $95 with Buy rating reiterated.

- Baird says earnings climbed 36%, exceeding consensus by 6%. While not a "great" quarter
(pretax income just below expectations), this reinforces the strong business model with controls, battery, and foreign automotive businesses all performing very well. They believe this is the start of several quarters of 20%-plus EPS growth. Firm is meaningfully raising estimates on higher revenue growth (euro and new business) and modestly higher margin assumptions noting their new price is $109 and could exceed $130 when valuation model rolls forward late this year. Maintains Outperform.

Notablecalls: Strong results powered JCI stock to a new all-time high on Friday. There was some initial selling but buyers soon took over, lifting the stock by as much as 4 bucks from day low. This kind of action usually indicates further upside to come. Also, the analyst community is out positive on the stock today, with BAC raising their tgt to $135 and Baird saying they expect their tgt to exceed $130 later this year. I would not be surprised to see JCI probe the $105 level, maybe as soon as today.

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