On Nov 21, we reaffirmed our Neutral recommendation on
security and protection services provider
Tyco International Ltd.
). While the company's long-term fundamentals appear solid, we
prefer to remain on the sidelines due to its soft top- and
bottom-line performances in the recent quarter.
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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. However, unfavorable foreign currency
translation, pending lawsuits and high operating expense remain
concerns for the company.
Tyco serves a wide range of clients including businesses and
governments, educational and medical institutions, and commercial
industries ranging from food to automobiles. It also boasts
leading brand names for products and services under all its
The company'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.
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.
However, the company expects corporate expense to be
approximately $225 million to $230 million in 2014. Going
forward, these are expected to increase due to the timing of
certain expenses and valuations. Moving ahead, higher expenses
could be a headwind for the profitability of the company.
Over the last 30 days, the Zacks Consensus Estimate for 2014
earnings per share stayed constant at $2.14. For 2015, it
increased by 0.8% to $2.58 per share.
Other Stocks to Consider
Tyco holds a Zacks Rank #2 (Buy). Other stocks that look
promising and are worth a look now include
Hutchison Whampoa Limited
Navigant Consulting Inc
), each having a Zacks Rank #2 (Buy).