Johnson Controls Inc (JCI), General Electric Company (GE): These 4 Numbers Suggest Something Is Wrong

The third problem with Johnson Controls is, the company’s pricing and expense management is the worst of their peers. If you compare Johnson Controls operating margin to their peers, the company’s 3.79% margin is less than Magna International Inc. (USA) (NYSE:MGA) at 5.46%. If you look at Johnson Controls compared to General Electric Company (NYSE:GE) and United Technologies Corporation (NYSE:UTX), these two behemoths sport much better operating margins of 19.27% and 13.93% respectively. While each of these companies have different areas of strength, the lower margin from Johnson Controls will make it difficult for the company to generate significant earnings growth relative to their peers.

Last but not least, and as if Johnson Controls’ relatively low yield wasn’t enough of an issue, Johnson Controls also carries a high payout ratio as well. General Electric Company (NYSE:GE) is the only company with a higher core free cash flow (net income + depreciation – capital expenditures) payout ratio at 90.42%. Of course the difference is for that higher payout ratio, investors get a significantly higher yield as well. By comparison, Johnson Controls’ payout ratio of 63% is significantly higher than United Technologies Corporation (NYSE:UTX) at 30.98% and Magna International Inc. (USA) (NYSE:MGA) at 17.06%.

Oh And Here Is A Bonus Issue To Think About
As you can see, Johnson Controls ranks second worst or worst in multiple categories compared to its peers. This might even be acceptable if the company’s valuation reflected these challenges. However, with the shares trading for a P/E ratio that is actually higher than both General Electric Company (NYSE:GE) and Magna International Inc. (USA) (NYSE:MGA), and just slightly less than United Technologies Corporation (NYSE:UTX), investors seem to be ignoring the obvious.

Johnson Controls might be an okay investment, but given the company’s yield, growth, valuation, and lackluster margins, I don’t see how investors can ignore these issues. This company has problems, and given the alternatives, investors should probably choose to power their portfolio with a different company.

The article These 4 Numbers Suggest Something Is Wrong originally appeared on Fool.com and is written by Chad Henage.

Chad Henage owns shares of General Electric Company. The Motley Fool owns shares of General Electric Company. Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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