NEW BULLISH Plays
Johnson Controls Inc. - JCI - close: 51.90 change: +1.09
Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 2, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.5 million
New Positions: Yes, see below
Why We Like It:
JCI is in the consumer goods business. A large chunk of their sales is in the auto parts industry. Right now auto-part stocks have been showing relative strength.
According to the company, "Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 170,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles."
The earnings picture last year was not that hot. Back in April 2014 JCI actually lowered guidance for their third quarter and fiscal 2014. The next two quarters were pretty bland. However, the earnings picture began to improve when JCI reported results last October. Their 2014 Q4 numbers beat analysts' estimates on the bottom line.
JCI held their annual investor day on December 2nd. Management said,
"We believe initiatives to improve the profitability of our businesses continue to gain momentum. Our 2014 results provide a foundation that we believe will position us to deliver record sales and earnings in 2015." JCI expects steady growth and minor margin improvement in the auto seating business. Their power solutions business should grow faster (about +5.5%) and margins should improve about 50 basis points to 18.5%.
JCI's next earnings report was their first quarter of 2015. Their announcement on January 22nd showed earnings grew +20% to $0.79 a share, beating expectations. Revenues were up +5% but when you account for currency adjustments they were up less than 1% but still above analysts' estimates. It's the first time they beat the revenue estimate in a while.
Their Q1 results were driving by a strong performance in China where sales surged +15%.
JCI's Chairman and CEO Alex Molinaroli said, "Profitability improved significantly in the quarter, as we benefitted from higher volumes and our continuing focus on execution improvements. The results in the quarter are better than the expectations we provided at our analyst day in December.
The company also announced a joint venture agreement. According to the press release JCI and "Hitachi, Ltd. and Hitachi Appliances, Inc. signed a definitive agreement on January 21, 2015 to form a previously announced global joint venture that will bring customers world-class variable refrigerant flow (VRF) technology, as well as room air conditioners and absorption chillers to meet increasing demands for energy efficient air conditioning options. The Johnson Controls-Hitachi joint venture is expected to have 2016 sales of approximately $3.0 billion. The formation of the joint venture is expected to close in the fourth quarter of fiscal 2015, pending regulatory approvals." JCI will own 60% of the business.
Technically shares of JCI have been in rally mode following their earnings report. Investors have been buying the dips and now JCI is challenging major resistance in the $52.00 area. The point & figure chart is bullish and forecasting a long-term target at $67.00. On the weekly chart (see below) JCI has formed an inverse head-and-shoulders pattern, which is bullish.
Tonight we are suggesting a trigger to launch bullish positions at $52.15.
Trigger @ $52.15
- Suggested Positions -
Buy JCI stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the Jul $55 CALL (JCI150717C55) current ask $1.25
Option Format: symbol-year-month-day-call-strike