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Tyco Promoted to Buy

Zacks Equity Research

On Jan 3, Zacks Investment Research upgraded security and protection services provider Tyco International Ltd. (TYC) to a Zacks Rank #2 (Buy) largely on the back of strong long-term fundamentals.

Tyco’s share prices have steadily been on the uptrend from Sep 2013. Despite its strong price appreciation, Tyco still has the wherewithal that may further drive the stock up. The stock is currently trading at a forward P/E of 13.9x and has long-term earnings growth expectation of 18.9%.

Why the Upgrade?

Tyco reported strong fourth quarter fiscal 2013 results as both revenues and earnings increased year over year. The year-over-year rebound to earnings was driven by accelerated growth in service and products along with increased benefits of productivity initiatives.

In the last reported quarter, Tyco reported GAAP income from continuing operations of $162 million or 34 cents per share, a significant improvement from loss of $629 million or $1.36 per share incurred in the year-ago quarter. Revenues for the quarter increased 1% year over year to $2,761 million, ahead of the Zacks Consensus Estimate of $2,759 million. Organic revenues improved 1% in the quarter, primarily led by an 8% increase in products and a 4% improvement in service.

Tyco’s acquisition pipeline is attractive and complements its existing businesses. The acquisitions are in line with the company’s strategy and are likely to provide solid long-term returns to its shareholders. Additionally, the company strengthened its service platform with strategic purchases and accelerated growth rate in high-growth markets. 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.

Over the last 7 days, the earnings estimates for Tyco did not show any upward or downward revision for 2013 and 2014. Although there is a lacuna of estimate revisions, we envision an uptrend for the stock backed by its strong growth potential.

Other Stocks to Consider

Some other players in the industry worth reckoning include CLARCOR Inc. (CLC), ITT Corporation (ITT) and Raven Industries Inc. (RAVN), each carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on ITT
Read the Full Research Report on TYC
Read the Full Research Report on RAVN
Read the Full Research Report on CLC

Zacks Investment Research