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Stock Analyst Update

CEO Change Puts Johnson Controls In Capable Hands

The market has been growing frustrated with the narrow-moat company’s financial results and stock performance since its merger with Tyco in September 2016.


 Johnson Controls (JCI) announced that former Tyco CEO and current Johnson Controls COO George Oliver will succeed Alex Molinaroli as the company’s chairman and CEO effective Sept. 1, 2017, approximately one month before the company’s fiscal year-end. This move marks an acceleration of the company’s previous leadership transition plan, which called for Oliver to take the CEO reins in March 2018 and assume the top board spot in March 2019.

We cannot say we are all that surprised with this announcement; the market has been growing frustrated with the company’s financial results and stock performance since its merger with Tyco in September 2016, and we have been hearing more about the need for a leadership change. The market reacted favorably to this announcement, and at the time of this writing, shares were up about 4%. Although we had a favorable view of the initial leadership succession plan, we now think it is best to start fiscal 2018 off fresh and avoid potential distractions of a midyear CEO transition. This news does not immediately impact our investment thesis, and we are maintaining our narrow-moat rating and $54 per share fair value estimate.

We think Johnson Controls is in capable hands. Prior to the merger, Oliver had been Tyco’s CEO since the company became a stand-alone fire and security business in 2012. During his tenure at Tyco, Oliver ran a balanced capital allocation strategy, oversaw numerous acquisitions and divestitures, and had implemented organization-wide operational improvement initiatives, which resulted in improved profitability. Prior to joining Tyco in 2006, Oliver spent over 20 years at General Electric.

With Oliver at the helm, we do see an increased probability of the company eventually divesting its power solutions segment, which could materially impact our longer-term investment thesis; however, with merger-related integration projects running at full steam, we do not think a divestiture is in the cards over the near term.

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Brian Bernard does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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