Johnson Controls (JCI), a diversified technology and industrial company, generates nearly 49% of its revenues from automotive interiors systems and another 36% from heating, ventilation, air-conditioning (HVAC) systems and solutions. The company is also a leader in the production of lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles.

Johnson Controls competes with major players such as Honeywell International (HON) and Siemens Building Technologies (SI) in the HVAC industry; Lear Corporation (LEA), Faurecia and Magna (MGA) in the automotive interior systems industry; and Exide Technologies (XIDE) and GS Yuasa in the automotive batteries industry.

We have a $38 price estimate for Johnson Controls, which is roughly 20% above its current market price. We have broken down our analysis of Johnson Controls by:

1. Heating, ventilation, air-conditioning systems and services
   (subdivided into HVAC systems, technical services, global workplace solutions)
2. Automotive interiors
3. Automotive batteries
4. Equity income from affiliates

Key value drivers

We expect Johnson Controls' market share in HVAC systems to remain stable through our forecast horizon as this is a very competitive sector with major players well matched in technology capabilities. But Johnson Controls' quick expansion in emerging countries, especially China, could provide upside as these are projected to contribute the most to HVAC market growth.

We also expect the company's automotive interiors market share will remain stable at 2011 levels through our forecast horizon. Growth in this driver would lead to a high level of vertical integration by Johnson Controls, enabling Johnson Controls to offer automobile OEMs cost effective solutions. Also, Johnson Controls' investment in research would help the company more rapidly develop and introduce new products to the market. On the other hand, automobile OEMs threaten market share growth by designing and manufacturing their own interiors to gain better control over their costs. Johnson Controls also faces increased price competition from emerging market manufacturers.

Johnson Controls has a commanding market share in automotive batteries, which we expect will grow gradually over our forecast horizon. This will be supported by the fact that the company is a leader in Absorbed Glass Mat (AGM) batteries, which are likely to witness rapid growth. These AGM batteries are used in start-stop technology, which allows an engine to shut down automatically while a car is idling and provides a fuel-efficiency gain of around 15%. However, around 70% of the company's lead-acid battery sales comes from North America and another 25% comes from the European region. Johnson Controls needs to expand rapidly in emerging economies to gain high levels of growth.