Johnson Controls Inc. (JCI) is shedding its auto supplier business and transitioning into the role of a diversified industrial company, in hopes of improving key metrics and tapping into a different investor population, says Edwin C. Ciskowski, Senior Vice President and Co-Portfolio Manager at Keeley Asset Management Corp.
“We own Johnson Controls,” Ciskowski said. “Ultimately, our thesis on this stock is that several years from now, when it’s finished rationalizing its OEM auto supply business, the stock could transition from being owned by and covered by auto analysts to being owned by and covered by diversified industrial analysts.”
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Ciskowski says JCI is a diversified industrial with a leading commercial and residential building efficiency division, and that the OEM auto supplier business divestiture should result in improved stock pricing.
“Clearly, JCI is a company that’s in the throes of change as it’s restructuring with the hope of improving margins and returns, but if we’re right and it ultimately is viewed as a diversified industrial — rather than an auto supplier — we could also benefit from an upward revaluation as diversified industrials trade at higher valuations than auto suppliers,” Ciskowski said.
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