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Johnson Controls' Coverage Gets Jump-Start With Narrow Moat

Battery manufacturer has intangible assets, consumer switching costs powering its moat.

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Upon the transfer of coverage to a new analyst, we have taken a fresh look at  Johnson Controls' (JCI) valuation following the Tyco merger and Adient seating spin-off. We are increasing our fair value estimate to $52 from $50 per share due to enhanced cost synergy assumptions included in our five-year explicit forecast.

The Adient spin-off and Tyco merger result in a more profitable and less cyclical business, with much less exposure to automakers' volatility and more exposure to higher-margin, recurring service revenue. We think Tyco's suite of security and fire-protection products and services complements Johnson Controls' building efficiency business, and the combination should drive synergies and enhanced market penetration. We expect building efficiency and fire and security sales to benefit from Chinese urbanization, increased demand for smart building solutions, and improving U.S. commercial construction.

Brian Bernard has a position in the following securities mentioned above: GM. Find out about Morningstar’s editorial policies.

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