The Risks Facing Johnson Controls


Milwaukee-based Johnson Controls (NYS: JCI) is known primarily as a "Tier One" auto supplier -- a big-league provider of parts and services to global automakers, like Ford (NYS: F) , Toyota (NYS: TM) , and Mercedes-Benz parent company Daimler . The company is, perhaps, best known among investors as a maker of batteries for cars, including the lithium-ion battery packs used in electric cars and the most advanced hybrids.

JCI's battery leadership has drawn the interest of many investors. The re-election of President Obama, and the very visible early success of Tesla Motors' (NAS: TSLA) Model S sedan, have helped contribute to renewed investor interest in electric cars. Thanks to government backing - which looks set to continue for at least four more years because of President Obama's re-election - and Tesla's example, electric cars are once again being viewed as a promising growth industry.

But is an investment in Johnson Controls the best way to play it? To help investors answer that question, I created a premium report on Johnson Controls that looks at the company's business as a whole, and prospects for each of its divisions.

Following is an excerpt from that report, which looks at Johnson Controls' leadership and the risks facing the firm. We hope you enjoy it.

Johnson Controls' fortunes are likely to rise and fall with those of its key clients — the world's major automakers. Automaking is a cyclical business -- which means that it rises and falls with the strength of the world's economies. A significant downturn in the U.S. or China will hit JCI's bottom line hard, at least for a few quarters.

JCI's major competitors include Exide Technologies in car batteries, Honeywell and United Technologies in building controls and, of course, other Tier One auto suppliers, like Lear and Magna. Any of those could pressure JCI, and likely will from time to time. But JCI is well positioned, with an enviable client list. Competitive risk looks well managed at this time.

Steve Roell, who became CEO in 2007, has spent much of his career with JCI. An adept manager, who knows the business inside and out, he has done a solid job of steering the company through the economic downturn, making strategic acquisitions and moves to expand as warranted.

Roell's 2011 base salary of $1.4 million was comparable to the salaries of CEOs at similarly-sized rival companies. Incentive pay -- restricted stock and option awards -- added considerably to his total compensation last year; but, again, it's not out of line with his competitors. Roell owns nearly 700,000 shares of JCI stock.

Looking for more guidance?
That was just a sample of the Motley Fool's new premium report on Johnson Controls. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. Just click here now to get started.

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