Standard & Poor’s (S&P) Ratings Services has upgraded its outlook on Wisconsin-based manufacturer of automotive interiors, batteries and other control equipment auto parts and building systems, Johnson Controls Inc. (JCI) to “positive” from “stable.” The revision was based on the company’s revenue and operating margins. S&P has also affirmed its BBB corporate credit rating on the company.

Johnson Controls, a Zacks #1 Rank stock, commands a strong position in its markets. The stock is being driven by cost-reduction efforts, accretive acquisitions and healthy operating cash flows.

In the first quarter of fiscal 2010 ended December 31, 2009, Johnson Controls showed a profit of $288 million or 43 cents per share, in stark contrast to a loss of $79 million or 13 cents per share (excluding non-recurring items) the previous year. This was much better than the Zacks Consensus Estimate of 29 cents per share.

The improvement in earnings was attributable to higher sales supported by the cost improvement initiatives of Johnson. Net sales in the quarter increased 15% to $8.4 billion. This was an increase for the first time since 2009.

In the quarter, Johnson Controls’ operating cash flow improved to $808 million, in sharp contrast to an outflow of $317 million in the previous fiscal year. Meanwhile, capital expenditures decreased to $177 million from $268 million in the first quarter of 2008.

Johnson Controls has projected a sales increase of 16% to $33 billion for 2010 versus the previous forecast of $31 billion. Earnings per share are now expected to lie in the range of $1.70–$1.75 per share compared to the earlier guidance of $1.35–$1.45 per share. The Zacks Consensus Estimates for the upcoming quarter and for fiscal 2010 are 34 cents and $1.80 per share, respectively.

Over the last 30 days, out of 17 analysts covering the stock, 11 analysts have revised their estimates upward while only one has revised downward for the upcoming quarter. In the same period, out of 16 analysts covering the stock, 15 analysts have revised upward their estimates while none has revised downward the estimate for 2010. This aggressive upward revision of estimates has reflected in a Zacks #1 Rank (Strong Buy) for the stock.

Zacks Investment Research

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