Monday, July 20, 2009

JCI beats estimates

Johnson Controls is a microcosm of the stock market. Last Friday, Goldman Sachs analyst Patrick Archambault, put this number on its "conviction sell" list. It gapped down a dollar at the opening at 20ish.

Here's what Goldman had to say:

We forecast below average revenue and EBITDA growth driven by the company’s late cycle Building Efficiency (BE) business which accounts for 41% of revenues. But despite this the company has fully participated in the sector’s early cycle rally rising 130% since its recent April 11 trough driving multiples on normalized earnings back to pre- recession levels which we see as aggressive given the protracted recovery in earnings we expect.

(April 11? Try March 11. At least I was on this number at 12ish on March 27.)

We note we are not making a call on the FY3Q09 results (reporting July 20th) even though we are below consensus on the quarter. Rather, our rating is based on our view that tighter commercial credit and increasing office vacancy rates are likely to weigh on the BE business which is 63% cyclical in our view, making consensus estimates difficult to achieve. While we see attractive long-term “green” opportunities associated with LEED certification and hybrid batteries, at present the revenue associated with these businesses is not large enough to offset important cyclical factors.

Key risks
A sustained auto rally given improving fundamentals which would support JCI

(How about the "green" multiple the market will give JCI? And Goldman can't see that the auto cycle is turning?)

Today JCI beat numbers, saw further increases in profitability and they had this to say,

"There are still many uncertainties in our industries, but there is better clarity than there was three months ago. Automotive production globally remains at low levels, but appears to be stabilizing. Industry analysts are beginning to see a bottom in the commercial buildings and residential HVAC markets in the next six to nine months. In addition, we expect an increasingly positive impact from the U.S. stimulus program," Mr. Roell said. "Due to our improved cost structure, Johnson Controls is well-positioned to benefit significantly as the markets improve."

Goldman's conviction sell, was baloney. (Just like their conviction sell on JWN was, which is finally getting ready to break out.) Just another "do as I say, not as I do" call.

And now that Goldman has a 1060 year end S&P 500 target, what are they going to do when their prop desk needs to get long?

Get long?

Who do you think was buying last week!

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