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According to Bloomberg, Johnson Controls (NYSE:JCI) saw its stock surge after activist hedge fund Elliott Investment Management announced a $1 billion stake in the company.
Investor Confidence and Stock Movement
The stock has performed well lately, indicating a bright future for Johnson Controls since it shows investors more faith in its management and ability to generate value.
Challenges and Opportunities Amid Underperformance
Johnson Controls’ stock value declined in early 2022, trailing both the S&P 500 and its HVAC counterparts. This underperformance has made it less attractive to long-term investors. Its worth increases, though, in declining markets. The growing demand for net-zero solutions and the OpenBlue digital platform will likely boost its success.
Management and Performance Concerns
Johnson Controls’ management has recently struggled to meet its targets, raising concerns about the company’s 2024 outlook. Supply chain problems, particularly with semiconductor chips, forced the company to reduce its annual income projection in 2022. These issues significantly impacted its most profitable divisions.
Management initially projected a 10% natural sales increase in 2023, but inventory adjustments reduced this to the high single digits. Additionally, a cyberattack caused the company to miss its sales and earnings targets for the fourth quarter of 2024.
2024 Outlook
In 2024, management aims for mid-single-digit income growth. However, achieving this goal could be challenging. The first two quarters saw slow growth, and the forecast for the third quarter predicts only a slight increase. Based on the performance, Johnson Controls would need a significant boost in the fourth quarter to meet its annual target.
The Wall Street consensus for earnings per share is $3.58, below the lower end of management’s guidance.
Implications for Investors
Johnson Controls has significant potential, but its management must meet expectations. There is pressure to perform in 2024 and activist investors like Elliott could push for reforms if the company falls short. From a risk/reward perspective, this could make the stock more attractive and help offset the downside of lacking direction.
Since early last year, attention has been focused on a critical chart resistance point around $70. A solid closure above this critical level might allow the stock to retest its all-time high of $81.77 on December 21.
Johnson Controls shares have increased by 13.5% over the past month, reaching $73.90.
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This article Activist Hedge Fund Picks Up Dividend Stock — What Is It And Should You Buy? originally appeared on Benzinga.com
