Data Centers Lift This Top Performer – And It’s Not An AI Stock

Key Points

• Johnson Controls stock rose about 13% last week.
• It was one of the top performing stocks on the S&P 500.
• Its strong earnings were fueled by data centers.

The stock has averaged a 17% annualized return per year over the past five years.

High performance computing data centers have been the main revenue driver for AI stocks like NVIDIA (NASDAQ:NVDA) and Micron (NASDAQ:MU), to name a few. But the emergence of these facilities where massive amounts of data are processed have lifted stocks in other industries, too.

One of them is industrial heating ventilation and air conditioning (HVAC) company Johnson Controls (NYSE:JCI).

Johnson Controls was one of the top performing stocks this week, rising almost 13% to about $88 per share. And its gains were fueled by a strong earnings report and outlook that was buoyed by its data center clients.

Data centers fuel growth

The Cork, Ireland based company grew sales by 4% in its first fiscal quarter ended December 31 to $5.4 billion. That was in line with the street’s estimates.

Net income rose about 12% year over year to $451 million, or 63 cents per share, which was better than estimates of 59 cents per share.

Products and systems accounted for $3.7 billion of sales, rising 2%, while services rose 8% to $1.74 billion.

Geographically, sales in North America grew 10% to $2.7 billion. In Europe, the Middle East and Latin America they rose 3% to $1.1 billion, while sales in Asia Pacific jumped 4% to $527 million.

A big driver of revenue has been data centers, as these large computing facilities require massive amounts of energy, as well as heating, ventilation and air conditioning. And Johnson Controls is a leading provider of HVAC for data centers.

“We continue to build momentum as a leading solutions provider to data centers, which is one of our fastest-growing verticals and remains an attractive opportunity,” Johnson Controls Chairman and CEO George Oliver said on the earnings call. “I am pleased to report that Johnson Controls was recently named the No.1 implementer among data center thermal management providers. It was recognized as a top innovator. We are one of only two players to be named an overall leader in the field.”

CFO Marc Vandiepenbeeck added that the company is seeing double-digit revenue growth among data centers, and he doesn’t se that momentum slowing, given the high demand for AI and data centers.

Earnings guidance raised for 2025

For the fiscal second quarter, Johnson Controls expects sales growth in the mid-single-digits and adjusted EPS of 77 cents to 79 cents. That would be up significantly from 64 cents in Q1.

For the full year, the company maintains its guidance of mid-single-digit revenue growth. However, it raised its adjusted earnings guidance to $3.50 to $3.60 per share, up from the previous $3.40 to $3.50 per share range. It also raised its adjusted segment margin improvement to 80 basis points, up from the previous 50 basis points.

Johnson Controls stock got a bunch of price target upgrades, including a $13 boost from JP Morgan to $100 per share, which would be a 13% increase over its current $88 per share price.

Johnson Controls stock has been on a nice run over the past year, up 62%. It has gained roughly 12% YTD. Longer term, it has been a steady performer, averaging a 17% annual return over the past five years and an 8.5% return over the past 10 years.  

It is a little pricey now with this 12-month run up, with a P/E of 41. But it has a forward P/E of 25, which is more reasonable. There’s a lot to like here, but maybe wait to buy a little lower.

This post originally appeared at ValueWalk.

Category: Dividend Stocks To Buy?