Will Tyco (TYC) Miss on Q4 Earnings Despite Strengths? - Analyst Blog

Security and protection services provider Tyco International Ltd. ( TYC ) is scheduled to report its fourth-quarter fiscal 2014 results before the market opens on Nov 13. In the last reported quarter, Tyco's adjusted earnings exactly matched with the Zacks Consensus Estimate. Let's see how things are shaping up for this announcement.

Key Factors in the Fourth Quarter

During the quarter, Tyco augmented its Internet of Things (IoT) capabilities by infusing proven technology and innovations into its existing product portfolio. Tyco has a long-serving IoT business that focuses on the retail market and delivers visibility and predictive capabilities for key insights into inventories, store traffic, and customer behavior. These enable retailers to undertake justifiable steps to maximize revenue by optimizing inventory and deliver a memorable shopping experience.

The company aims to replicate this success with similar applications in other verticals as well. Tyco's IoT platform collates data from traditional facilities-oriented systems and transfers them into valuable business intelligence system to perform advanced analytics and gain critical insight. Tyco is presently extending this IoT platform to incorporate more sensors, devices and applications to capitalize on the huge market potential of the IoT market.

According to data by research agency International Data Corporation, the global IoT market is likely to expand manifold to $7.1 trillion by 2020, as more and more people develop an affinity for full-time connectivity. The worldwide IoT installed base is expected to have a CAGR of 17.5% from 2013 to 2020 with a wide proliferation across the full breadth of the IoT ecosystem, including intelligent and embedded systems shipments, connectivity services, infrastructure, purpose-built IoT platforms, applications, security, analytics, and professional services. All these offer an exciting revenue-generating potential for Tyco.

The company has also approved a plan to increase its share repurchase program by an additional $1 billion. The increased share repurchase authorization is likely to act as a cushion as the current program is scheduled to be completed by the first quarter of fiscal 2015. 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.

Earnings Whispers

Despite the positive trends, our proven model does not conclusively show that Tyco is likely to beat earnings this quarter as it does not possess the key ingredients for a success recipe.

Positive Zacks ESP: Expected Surprise Prediction or Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +5.36%. This indicates a likely earnings beat.

Zacks Rank #4 (Sell): Tyco's Zacks Rank #4 reduces the predictive power of Zacks ESP and skews it towards an earnings miss. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 (Hold) have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Zumiez, Inc. ( ZUMZ ), earnings ESP of +3.85% and a Zacks Rank #2.

The Kroger Co. ( KR ), earnings ESP of +3.28% and a Zacks Rank #2.

The Men's Wearhouse, Inc. ( MW ), earnings ESP of +2.30% and a Zacks Rank #3.

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ZUMIEZ INC (ZUMZ): Free Stock Analysis Report

TYCO INTL LTD (TYC): Free Stock Analysis Report

MENS WEARHOUSE (MW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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