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Investing in Johnson Controls International: A Surefire Way to Profit

Key Points
Johnson Controls International’s sell-off is overdone and has the market set up for a sharp reversal. 
The deep value and relatively high yield will help sustain the rebound when it forms.
Analysts sentiment suggests at least a 10% rebound that could extend to 30% or more. 
5 stocks we like better than Johnson Controls International
Johnson Controls International NYSE: JCI stock has dropped 30% from its recent highs, providing an attractive entry point for investors. 
Despite facing headwinds, the company’s business and outlook are stable, offering potential sustained capital returns. The stock trades near long-term lows at the bottom of an established trading range, increasing the likelihood of a rebound. 
Analysts’ sentiment has been stable over the last year, with a minimum of 10% upside for the stock, indicating the potential for a rapid and substantial rebound. 
Growing Johnson Controls has a strong 2023; growth to continue
The residential building industry faces challenging headwinds, but Johnson Controls has been minimally impacted. The company has sustained a mid-to-high single-digit growth pace all year, with growing backlogs reaching record levels, which is expected to continue in Q4 and next year.
Consensus estimates for Q4 include a 5% growth in revenue compounded by a wider margin. The bottom line should grow at double the pace, and these metrics are expected to persist in 2024. The consensus for next year includes near-5% growth, with EPS rising 11%. This indicates a healthy business outlook for the coming year. 
The stock trades at a low 14x earnings, 13x next year’s consensus, a bargain relative to the SPDR S&P 500 ETF Trust NYSEARCA: SPY. Competitors Carrier Global Corporation NYSE: CARR and Trane Technologies NYSE: TT trade 20x to 25x their earnings and pay about half the yield, suggesting a deep value within the industry. Johnson Controls International pays about 2.6% with shares at long-term lows, and it comes with a positive outlook for distribution increases. The payout ratio in 2023 is about 42% and falls compared to the next year’s outlook, indicating potential for increased distribution. The company has a strong balance sheet with long-term debt of 0.5x shareholder equity.
Cash flow is solid and allows for share repurchases. The company repurchased $366 million of shares in Q3 and $613 million on a to-date basis. The share count is down about 2% due to the activity, and repurchases should continue in Q4 and 2024.
Johnson Controls International’s share decline is overextended 
The decline in JCI share price is primarily attributed to mixed analyst activity in 2023, including downward revisions in price targets and a few downgrades. However, the market has front-run the analysts and is expected to rebound. The analysts’ community continues to rate the stock a “moderate buy” with a price target trending within a narrow range all year. The analysts’ low price target of $58 implies at least a 10% upside, and the consensus is closer to 30%, indicating the potential for a rebound.
The price action in JCI shares is favorable to bottoming and a reversal. The market fell to the bottom of a long-term trading range and is forming a head and shoulders on the daily charts.
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