Johnson Controls Reports Thursday, Takes Lead in Solving Water Problems

Johnson Controls (JCI)  released a press release Tuesday discussing the details about a new win they had for some water chillers in Bahrain. Now, normally Johnson Controls would never cross your mind as a ‘water play’, but in the press release they said:

We see this [the Bahrain order] as the beginning of a new trend of using seawater as cooling water for large district cooling plants in the Middle East region. Johnson Controls has the best suitable equipment for such application, we expect to gain a leading position in this potentially fast growing market segment,

Let me tell you, by my research into the world’s water problems - they are right, this will be a growing sector. And, according to them, they have a technological lead because their chillers are already made of titanium, where most of the competition’s isn’t. In the same press release:

• The use of titanium tubes permits the use of sea water for heat rejection. Other chillers using sweet water cooling towers for heat rejection could have consumed up to 1300 gallons per minute of sweet water to make up for evaporation from the cooling towers.
• Titanium is highly resistant to both erosion and corrosion. This facilitates the use of internally enhanced high performance tubes and permits water to be circulated at high velocities through the tubes resulting in greater heat transfer and higher operating efficiencies

Even as the shares slide, in a market like this I am continually impressed by the leadership at Johnson Controls. They announce earnings Thursday. I’m confident in the long term, but a little worried about this current quarter’s results. I think a miss and re-iterate guidance is priced in. The market currently expects the worst. If they hit the EPS targets, maintain guidance, and cash-flow doesn’t become more of a problem, the stock should pop up 5% or 6%. A beat and a raise would send it flying, more than normal, but a miss and the stock shouldn’t fall too hard. I’d hold through any dip, and buy more trying to pick a bottom.

At the time of writing, JCI was trading at $28.40.

By the way, I went to the (RIMM) shareholder meeting last night. That was fun, I was pretty impressed by the new Bold and everything I heard.

Disclosure: Author is long JCI & RIMM.