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Tyco Upgraded to Buy

Zacks Equity Research

On Dec 28, Zacks Investment Research upgraded security and protection services provider Tyco International Ltd. (TYC) to a Zacks Rank #2 (Buy) on the back of solid fourth quarter fiscal 2013 results and strong long-term fundamentals.

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.

With such positive strides, the share prices are continuously moving north and touched a 52-week high of $41.44 during its trading session on Dec 27. Tyco closed the trading session on Dec 30 at $41.18, reflecting a year-to-date return of 37.3%.

The stock has potential for further accretion with a forward PE of 19.3x and long-term earnings growth expectations of 13.9%. Over the last 7 days, the earnings estimates did not show any upward or downward revision for 2013. 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