Shares of security and protection services provider Tyco International Ltd. (TYC) scaled a 52-week high of $45.59 on Jun 16, before closing the trading session a notch lower at $45.37 for a healthy one-year return of 35.9%. Barring minor hiccups, Tyco’s share prices have steadily been on an uptrend from Sep 2013.
Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock still has enough fundamental strength to drive it upward. The stock is currently trading at a forward P/E of 22.5x and has long-term earnings growth expectation of 14.3%.
Tyco’s acquisition pipeline is attractive and complements its existing businesses. During the last reported quarter, Tyco closed the acquisition of Westfire, Inc., a leading fire installation and services business in the mining and special hazard verticals in the U.S., Chile and Peru. The acquisition is expected to generate approximately $80 million in revenues in fiscal 2014 and provide Tyco a solid platform for growth in Latin American.
We are bullish on the company’s fortunes based on the relative stability of the global security and fire markets, as well as high and predictable cash generation, limited balance sheet risk and easy cost-out opportunities. There is a potential catalyst in the company’s solid balance sheet and healthy liquidity position. The company returns significant cash to shareholders through share buybacks and dividends. Tyco also continues to invest in its businesses to strengthen long-term competitive capabilities for both products and services. Given the integration of the Fire and Security businesses, the company is uniquely positioned to bring differentiated solutions to its combined customer base.
Tyco also divested ADT Korea and its remaining minority interest in Atkore International. This repositioning aims to ensure the right mix of businesses of the company and maximize long-term value for its shareholders. On a combined basis, these two transactions generated over $2 billion in deployable cash, which the company can utilize for other attractive investments, thereby propelling investor confidence.
Moving ahead, Tyco believes that its strong balance sheet will provide flexibility to continuously fund organic and inorganic growth initiatives and maximize return for its shareholders. Additionally, accretive acquisitions are expected to strengthen the company’s position by broadening its product and service offerings in the long term.
Other Stocks to Consider
Stocks in the industry that warrant a look include ITT Corporation (ITT), Compass Diversified Holdings (CODI) and Carlisle Companies Incorporated (CSL), each of which carry a Zacks Rank #2 (Buy).