Wall Street Thinks This Large-Cap Dividend Stock Will Grow 18% Next Year
Based on Wall Street estimates, heating, ventilation, air conditioning (HVAC), fire and security, and building-controls company Johnson Controls (NYSE: JCI) is a highly attractive stock to buy. Analysts predict significant earnings, free cash flow (FCF), and profit-margin expansion for its fiscal 2023. As a result, the stock's valuation will look extremely compelling if the company hits the consensus forecast. Here's why Johnson Controls deserves a place in a diversified investor's portfolio.
Here's a look at the numbers forecast by Wall Street, with a reminder that its financial year ends on Sep. 30, so it's already trading in its fourth quarter as I write. The table below shows the key figures. Note the decline in FCF in 2022 and then the sharp increase in profit margin in 2023 and 2024, accompanied by solid growth in profit and FCF in 2023 and 2024.
I'll come to the margin expansion in a moment, but first, a few words on FCF because Johnson Controls' FCF dynamics are pretty common in the current environment. Many industrial companies, including General Electric and Stanley Black & Decker, face FCF constraints in 2022 due to high prices for materials (inventory) when commodity/raw materials prices surged. Since it takes time to pass on costs in the form of higher prices and to book revenue, more cash will be tied up in the form of working capital (notably inventory). According to CFO Olivier Leonetti on the earnings call, FCF conversion (from net income) will be 80% in 2022 (compared to previous guidance for 90%), but "inventory will go down" and "we are totally convinced that we will be able to go back to the 100%."
Source Fool.com
