Is Johnson Controls Overvalued Despite Strong Smart Building Momentum?

The global smart building and decarbonization sectors are experiencing a surge in demand driven by energy efficiency mandates, corporate sustainability goals, and technological advancements. Johnson Controls (JCI), a leader in building automation, has seen its stock trade at a forward price-to-earnings (P/E) ratio of 31.15x, significantly above the S&P 500's 25.58x. This raises a critical question: Is Johnson Controls overvalued despite its strong momentum in a high-growth industry? To answer this, we must compare its valuation metrics to peers like Siemens, Honeywell, and Schneider Electric, while assessing the structural growth potential of the decarbonization and smart infrastructure megatrends.

Valuation Metrics: A Mixed Picture

Johnson Controls' Q3 2025 results underscore its operational strength. The company reported adjusted earnings per share of $1.05, with organic sales growth of 6% and segment margins expanding to 17.6%. It raised full-year adjusted EPS guidance to $3.65–$3.68 and maintained a net debt-to-EBITDA ratio within its target range of 2–2.5x. However, its forward P/E of 31.15x appears elevated when compared to peers.

- Honeywell trades at a P/E of 25.27x, near its five-year low, with a P/S ratio of 3.58x and a P/B ratio of 8.76x. Its Building Automation segment has seen robust organic sales growth (7% in Q3 2025), driven by demand in data centers and hospitality projects.
- Schneider Electric has a P/E of 30.8x, above the European electrical industry average of 22.7x but below its proprietary fair ratio of 33.4x. While its stock is seen as undervalued by some metrics, a discounted cash flow analysis suggests it is overvalued by 67.2% relative to intrinsic value.
- Siemens carries a P/E of 65.62x, a stark outlier, though its P/B ratio of 2.45x and strong free cash flow of €10.58 billion suggest resilience. Analysts project its P/E to normalize to 21.4x by 2028.

Johnson Controls' P/E is lower than Siemens' but higher than Honeywell's, placing it in a middle-tier valuation range. However, its price-to-book (P/B) and price-to-sales (P/S) ratios remain undisclosed in the available data, limiting a full comparison. This opacity contrasts with Honeywell's and Siemens' transparent metrics, which provide clearer benchmarks.

Structural Growth Potential: A Sector in Expansion

The decarbonization and smart infrastructure sectors are poised for explosive growth. The global smart building market is projected to expand from $108 billion in 2024 to $819.25 billion by 2032 at a 19.7% CAGR, while the U.S. building automation controls market is expected to grow at a 6.5% CAGR through 2033. Johnson Controls' OpenBlue platform, bolstered by acquisitions like Webeasy, positions it to capitalize on this trend.

Yet, competition is fierce. Siemens leads in AI and digital twin adoption, while Schneider Electric excels in global market share and deployment support. Honeywell's restructuring, including the spin-off of Solstice Advanced Materials, further sharpens its focus on building automation. These peers are not only innovating but also leveraging IoT, cloud-based solutions, and predictive maintenance to optimize energy consumption.

The Overvaluation Debate

Johnson Controls' valuation must be weighed against its growth trajectory. A forward P/E of 31.15x implies investors are paying a premium for its digital transformation and market share (7% in building automation). However, this premium must be justified by structural growth. The company's Q3 results-strong backlog growth, margin expansion, and free cash flow of $1.8 billion-support this case.

Yet, the absence of P/B and P/S ratios creates uncertainty. For context, Honeywell's P/S of 3.58x and Siemens' P/B of 2.45x suggest that Johnson Controls' metrics, if available, might reveal a more nuanced picture. If its P/B or P/S ratios are similarly elevated, the valuation could appear stretched relative to peers.

Conclusion: A Justified Premium?

Johnson Controls' valuation is neither clearly overvalued nor undervalued. Its forward P/E of 31.15x reflects optimism about its role in decarbonization and smart infrastructure, sectors with multi-decade growth potential. While peers like Honeywell and Schneider Electric offer cheaper valuations, they also face challenges in innovation and market share.

Investors should monitor Johnson Controls' P/B and P/S ratios as they become available, alongside its ability to sustain margin expansion and execute its digital strategy. For now, the company's valuation appears justified by the sector's tailwinds, provided it can maintain its competitive edge in a rapidly evolving landscape.