Is It Too Late To Consider Johnson Controls After Its Strong Multi Year Share Price Rally?

• If you are wondering whether Johnson Controls International is still worth buying after such a big run up, you are not alone. This is exactly what we are going to unpack today.
• The stock has been grinding higher, up about 0.5% over the last week, 0.8% over the past month, 46.0% year to date, and 42.1% over the last year. These gains build on multi-year returns of 85.8% over three years and 182.9% over five years.
• Recently, investors have been reacting to a steady drumbeat of news around building energy efficiency, smart infrastructure, and government-backed decarbonization initiatives, all of which play directly into Johnson Controls International's core strengths. At the same time, growing interest in smart buildings and digital controls has reinforced the narrative that this is a long-term structural growth story rather than just a short-term trade.
• Despite that optimism, Johnson Controls International currently posts a valuation score of 0/6, which means it does not screen as undervalued on any of our basic checks. Next, we will break down what the main valuation approaches say about the stock today and then finish with a more holistic way to think about its overall worth.

Johnson Controls International scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Johnson Controls International Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company is worth by projecting its future cash flows and then discounting them back to today in $ terms. Here we use a 2 Stage Free Cash Flow to Equity framework, which starts with higher near term growth before fading to a steadier long term rate.

Johnson Controls International generated about $0.93 billion of free cash flow over the last twelve months. Analysts expect this to rise meaningfully, with Simply Wall St aggregating forecasts and then extrapolating further out, leading to projected free cash flow of roughly $3.83 billion by 2029 and around $5.30 billion by 2035. When all of those future cash flows are discounted back, the model arrives at an intrinsic value of about $100.89 per share.

Compared with the current share price, this implies the stock is roughly 14.3% overvalued on a DCF basis. In other words, the recent rally appears to be running ahead of fundamentals rather than lagging them.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Johnson Controls International may be overvalued by 14.3%. Discover 933 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Johnson Controls International.

Approach 2: Johnson Controls International Price vs Earnings

For a profitable business like Johnson Controls International, the price to earnings, or PE, ratio is a sensible way to judge value because it links what investors pay directly to the profits the company is generating today. In general, faster growing and less risky companies deserve a higher PE, while slower growing or more cyclical names tend to trade on lower, more conservative multiples.

Johnson Controls International currently trades on a PE of about 40.9x, which is well above the Building industry average of roughly 18.9x and also meaningfully higher than the peer group average of about 25.3x. On the surface, that suggests investors are already paying a premium for its earnings.

Simply Wall St also calculates a Fair Ratio, which is the PE you would expect given Johnson Controls International's specific mix of earnings growth, profitability, industry, market cap and risk profile. For Johnson Controls International, that Fair Ratio is estimated at around 36.9x. Because this metric is tailored to the company rather than being a blunt comparison with peers, it is a more nuanced way to judge whether the current market price is reasonable. With the actual PE sitting noticeably above the Fair Ratio, the shares appear somewhat expensive on this measure.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1440 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Johnson Controls International Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of Johnson Controls International’s future with concrete numbers like revenue, earnings, margins, and a Fair Value estimate. A Narrative is your story about the company, translated into a financial forecast and then into a Fair Value that you can compare to today’s Price to decide whether you think the stock is a buy, hold, or sell. On Simply Wall St’s Community page, millions of investors use Narratives as an easy, accessible tool that turns their assumptions into dynamic valuation models that automatically update when new information, such as earnings releases or major news, comes in. For example, one investor might build a bullish JCI Narrative around strong HVAC and data center demand, supporting a Fair Value near the optimistic 132 dollar target. Another might focus on execution risks and slower growth, leading to a much more cautious Fair Value closer to 79 dollars. Narratives makes both views explicit, comparable, and actionable.

Do you think there's more to the story for Johnson Controls International? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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