Wachovia Capital Markets upgraded Johnson Controls Inc to outperform, saying the auto parts maker was well positioned to generate strong earnings growth in 2010 and beyond.
We believe recent restructuring efforts should enhance operating leverage and boost earnings significantly in 2011 and 2012, said the brokerage, which previously had a market perform rating on the stock.
Last month, Johnson Controls said it completed 70 percent of the restructuring, announced at the end of 2008, ahead of schedule. The actions included shutting 21 plants and eliminating 9,300 jobs, or 7 percent of its global workforce.
The brokerage said it also expects the company to reduce debt by the end of 2011 and added that Johnson Controls should have plenty of financial flexibility to consummate a sizable transaction, if the opportunity arises.
The Milwaukee-based company supplies parts for almost every major automaker, including General Motors, Toyota Motor Corp(7203.T), Honda Motor Co Ltd (7267.T), BMW (BMWG.DE) and Hyundai Motor Co (005380.KS).
On Johnson Controls' earnings power over the next three years, the brokerage said consensus estimate for 2010 was relatively conservative and that there was a growing probability that the numbers would be revised higher.
Wachovia said the No. 3 North American auto parts supplier could achieve earnings-per-share of more than $2.00 in fiscal 2011 and $2.50 to $2.75 in fiscal 2012.
Johnson Controls shares were trading up almost 5 percent at $18.55 Thursday morning on the New York Stock Exchange.
(Reporting by Mary Meyase in Bangalore; Editing by Himani Sarkar)