Fitch Ratings, a global credit rating firm, has reaffirmed the
credit rating of A- for security and protection services provider
Tyco International Ltd.
). The A-rating denotes a stable outlook with a relatively strong
credit quality, low default risk and adequate capacity to meet
current financial commitments.
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While reiterating its long-term debt ratings, Fitch has
considered Tyco's strong market position in its fire and security
sectors, geographic diversification and low leverage with a
Debt/EBITDA of 1.0x (as of Jun 28, 2013). In addition, Fitch
expects an improved operating performance by Tyco in the
impending quarters, following its separation from ADT and Flow
businesses at the end of fiscal 2012 to focus entirely on fire
and security operations as a standalone business.
Furthermore, Fitch observed that about 30% of Tyco's revenues are
recurring in nature, which offsets the volatility in the
installation business. The company is currently focusing on
expanding in emerging markets, while selectively growing its
business in high-margin products. Although margins are expected
to be weak due to business restructuring, Fitch anticipates
operating margins to increase by 150-200 bps in the long-term.
Free cash flow is expected to be about $500 million in 2013.
Fitch expects Tyco to have adequate liquidity to fund share
repurchases and acquisitions. For full year 2013, acquisitions
are expected to aggregate $225 million as Tyco remains focused on
inorganic growth as a primary growth driver.
We remain bullish on Tyco's fortunes based on the relative
stability of the global security markets as well as high and
predictable cash generation, limited balance sheet risk and easy
cost-out opportunities. The company's solid balance sheet and
healthy liquidity position are also potential catalysts to
continuously fund organic and inorganic growth initiatives and
maximize return for its shareholders.
Tyco provides latest fire protection and security products and
services to more than three million customers across the globe.
The company has more than 70,000 employees in over 1,000
locations across 50 countries, serving various end markets,
including commercial, institutional, governmental, retail,
industrial and energy, residential and small businesses.
Tyco currently has a Zacks Rank #3 (Hold). Other stocks in the
industry that look promising and are worth considering include
Hutchison Whampoa Ltd.
) with a Zacks Rank #1 (Strong Buy),
Magna International Inc.
), both carrying a Zacks Rank #2 (Buy).