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Johnson Controls Is an Attractive Investment Opportunity

Recent performance has been choppy, but the narrow-moat firm's building technologies business has one of the most comprehensive product portfolios in the industry.

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Brian Bernard: We continue to view narrow-moat Johnson Controls as an attractive investment opportunity. Following its transformative merger with Tyco and its spin-off of its automotive seating business in 2016, Johnson Controls has become a more profitable and less cyclical company, and the firm remains on track to realize over $1 billion in cost synergies by fiscal 2020.

Still, shares have underperformed since the company's transformation leaving shareholders frustrated. However, we think the market has been too focused on the company's recent performance, which has been choppy in part due to its integration efforts with Tyco, and the market is missing the longer-term picture. Based on our analysis, we believe Johnson Controls' building technologies business has one of the most comprehensive product portfolios in the industry. Only United Technologies has a similar product portfolio that spans across commercial HVAC, building automation and controls, and fire and security, and United Technologies is facing activist pressure to sell or spin-off this business. If this happens, we think Johnson Controls could take advantage of disruption at a key competitor.

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