Johnson Controls(JCI) Seeking Alpha·2024-08-29 03:00Strategic Focus - Johnson Controls is refining its portfolio by selling its residential HVAC business, aiming to position itself as a "Comprehensive Solutions Provider for Commercial Buildings" [1] - The company's comprehensive solutions include HVAC, fire safety, controls, security, and related services, with approximately 10% of the business still non-core after pending transactions [1] - Further divestitures are expected in the coming quarters to streamline the portfolio [1] Business Strategy and Growth - Johnson Controls is shifting from selling individual services to offering comprehensive solutions, including its OpenBlue Platform, which enables data-driven smart building services [3] - The Smart Building market is projected to grow at an annual rate of 11% through the decade, with a focus on outcome-based solutions that save building operators money over time [3] - The company has launched 8 OpenBlue Innovation Centers to educate customers and business channel partners on the benefits of connected solutions [3] - Johnson Controls' ability to sell and service a comprehensive suite of solutions provides a unique competitive advantage, as competitors primarily focus on single equipment or digital capabilities [3] Financial Performance and Valuation - Johnson Controls is trading at approximately 20 times FY 2024 free cash flow, with a free cash flow yield of around 5% [5] - The residential HVAC divestment is expected to free up several billion dollars in FY 2025 for share repurchases, with margins and profitability improving [5] - The company is projected to earn 90, representing 25% upside [6][8] Operational and Strategic Execution - Johnson Controls has reduced its manufacturing facilities by over 25% through the sale of its Air Distribution Technologies business, improving its margin profile [4] - The company's Asia Pacific sales have stagnated, but an upturn in China or a weaker U.S. dollar could serve as a catalyst for growth [4] - The strategic shift towards comprehensive solutions is progressing, with real data showing increased connectivity and additional services being added to the installed base [4] Cybersecurity and Management - A 2023 cybersecurity breach raised concerns, particularly for a company in the building security business, highlighting the need for a strong cybersecurity culture [7] - The company is increasing its cybersecurity spending, but the effectiveness of these measures remains to be seen [7] - The selection of a new CEO with relevant experience will be critical to the company's strategic success and cybersecurity capabilities [7]