Johnson Controls International plcJCINYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $65.10 per share(market-calibrated)

-53.4%

Upside to Fair Value

Current

$139.58

Pure Model

$58.94

Fair Value

$65.10

Bull Case

$76.93

Bear Case

$42.62

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

7.83%

Calibrated Growth

4.20%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $58.94.

What's Driving This Ratingfor JCI

✓

CapEx already efficient

CapEx at 2.05% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 8.74% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $4.4B (11.60% margin).

→

Moderate revenue growth

Analyst consensus projects 6.46% revenue growth, fading to 2.25% by Year 10. Revenue reaches $38.0B (vs $23.6B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $45.63/share (13.2x terminal FCF) while exit multiple gives $72.25/share (23.5x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $139.58, the market implies 7.83% perpetual growth — 558bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 76.57% indicates efficient cash generation. FCF reaches $4.4B by Year 10 (11.47% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.43

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.93%

Cost of Debt

Pre-tax Cost of Debt2.89%

Tax Rate12.44%

After-tax Cost of Debt2.53%

Equity Weight (E/V)89.05%

Debt Weight (D/V)10.95%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (89.05% × 10.93%) + (10.95% × 2.53%)

= 10.01%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$25.1B	$28.2B	$31.8B	$34.8B	$38.0B
EBIT	$2.2B	$2.5B	$2.8B	$3.6B	$4.4B
Tax	$273M	$306M	$346M	$445M	$549M
NOPAT	$1.9B	$2.2B	$2.4B	$3.1B	$3.9B
+ Depreciation	$849M	$952M	$1.1B	$1.2B	$1.3B
- Capex	$514M	$576M	$650M	$713M	$777M
- Δ NWC	$15M	$15M	$17M	$14M	$8M
Free Cash Flow	$2.2B	$2.5B	$2.8B	$3.6B	$4.4B
Discount Factor	0.909	0.751	0.621	0.513	0.385
Present Value	$2.0B	$1.9B	$1.8B	$1.8B	$1.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.4B

Terminal Growth Rate2.25%

WACC10.01%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$57.5B

PV of Terminal Value$22.1B

Exit Multiple Method

Year 10 EBITDA$5.7B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$102.5B

PV of Terminal Value$39.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$18.4B

PV of Terminal Value$22.1B

Enterprise Value$40.6B

(-) Net Debt$10.8B

Equity Value$29.7B

Shares Outstanding652M

Price per Share$45.63

Exit Multiple Method

PV of Projected FCFs$18.4B

PV of Terminal Value$39.5B

Enterprise Value$57.9B

(-) Net Debt$10.8B

Equity Value$47.1B

Shares Outstanding652M

Price per Share$72.25

Pure Model Fair Value

$58.94

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
8.01%	$74.22	$76.20	$78.52	$81.29	$84.63
9.01%	$64.71	$66.08	$67.65	$69.47	$71.61
10.01%	$56.86	$57.84	$58.94	$60.20	$61.65
11.01%	$50.22	$50.94	$51.75	$52.65	$53.67
12.01%	$44.52	$45.07	$45.67	$46.34	$47.08

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$42.62

-69.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.78

Base Case

$58.94

-57.8% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.43

Bull Case

$76.93

-44.9% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.21

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.46%

Year 3 Revenue Growth5.57%

Year 5 Revenue Growth5.74%

Year 7 Revenue Growth4.34%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin8.74%

Terminal EBIT Margin13.00%

Tax Rate12.44%

Historical Capex / Rev2.05%

NWC / Revenue0.99%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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