The corporate headquarters of Johnson Controls in Glendale, Wis.
Courtesy Johnson Controls
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Air conditioning stocks have turned into great investments for a couple of reasons. First, a drive for companies to be more environmentally responsible is creating more demand for more efficient heating and cooling solutions. Second, a drive to improve building air quality as people come back to work after Covid is creating new business, too. Exactly how much business those two trends can create was on display at an investor event on Wednesday.
Air conditioning and building security supplier
Johnson Controls International
(ticker: JCI) hosted an event for investors Wednesday. Investors like what they are hearing. Shares are up 1.2% in early trading. The
S&P 500
and
Dow Jones Industrial Average
are both down about 0.1%.
The rise puts Johnson stock just off its late August 52-week high of $75.58 a share. Shares are now up about 60% year-to-date. Other air conditioning related stocks are heating up as well.
Carrier Global
(CARR) shares are up about 50% year-to-date. Shares of
Trane Technologies
(TT) and
Lennox International
(LII) have gained about 33% and 20%, respectively.
Faster growth for the industry appears to be the main reason for increasing optimism. Johnson says its total addressable market is about $300 billion today. That’s all the sales of equipment, software and services related to running and securing residential and commercial buildings.
Sales of the four U.S. air conditioning players, for some additional context, are expected to come in at about $62 billion this year.
Johnson believes added spending on air quality and building efficiency can push its addressable market to about $550 billion over the next decade. That works out to about 6% average annual growth, faster than the market has grown in recent years.
Johnson grew its sales at about 4% a year on average over the past four years. What’s more, Johnson’s adjusted operating profit grew at close to the same rate. Looking ahead, management is projecting 6% to 7% sales growth and about 13% average annual growth in operating profits.
Wall Street is catching on to these trends. Now 67% of analysts rate shares Buy. Two years ago — before the pandemic and heightened concern about climate change — only 26% of analysts covering Johnson stock rated the shares Buy.
The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
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