Security and protection services provider
Tyco International Ltd.
) is set to report second-quarter 2014 results before the market
opens on Jul 25.
In the preceding quarter, Tyco delivered a positive earnings
surprise of 12.50%. On an average, the company has posted a 4.81%
positive surprise in the trailing four quarters. Let's see how
things are shaping up for this quarter.
Factors to Consider This Quarter
With continued improvement in its service and products revenue,
supported by a rise in installation proceeds, Tyco expects to
witness top-line growth. The company enjoys a relative stability in
the global security and fire markets with a predictable cash
generation, limited balance-sheet risk and easy cost-out
During the quarter, Tyco completed the sale of its South Korean
security business to The Carlyle Group LP, an asset management
company, for $1.93 billion in cash. Also, the company sold the
residual interest in its former electrical and metal products
business, Atkore International, in a cash deal valued at around
This strategic repositioning is aimed at improving the business mix
of the company and generating additional value. These divested
units generated over $2 billion in total deployable cash, which the
company can employ in pursuing lucrative opportunities. However,
the divestments are likely to create an immediate negative impact
in the upcoming quarters.
Tyco, now a pure Fire & Security company, boasts an attractive
acquisition pipeline. Last year, it acquired 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, expected to produce approximately $80 million in 2014
revenues, will favorably impact the company's performance in the
Our proven model does not conclusively show that Tyco is likely to
beat earnings this quarter as it does not have the right
combination of two key ingredients for a likely beat. That is
because a stock needs to have both a positive
and a Zacks Rank #1, #2 or #3 for this to happen. That is not the
case here as you will see below.
Expected Surprise Prediction, which represents the difference
between the Most Accurate estimate and the Zacks Consensus
Estimate, is currently pegged at 0.00%. This is because both the
Most Accurate estimate and the Zacks Consensus Estimate currently
stand at 54 cents.
Tyco has a Zacks Rank #4 (Sell). We caution against Sell rated
stocks (#4 and #5) going into an earnings announcement. When
combined with 0.00% ESP, the Zacks Rank #4 fails to conclusively
predict an earnings surprise. Rather, the probability of an
earnings miss in the soon-to-be-reported quarter is comparatively
Other Stocks to Consider
Here are other companies you may want to consider as our model
shows that these have the right combination of elements to post an
earnings beat this season:
Kirby Corporation (
), with Earnings ESP of +3.08% and a Zacks Rank #1 (Strong Buy).
Hospira Inc. (
), with Earnings ESP of +1.79% and a Zacks Rank #1.
Silicon Motion Technology Corp. (
), with Earnings ESP of +33.33% and a Zacks Rank #1.
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