Multinational conglomerate Tyco International was sailing along in 1999, reporting solid revenue and earnings improvements, when
lightning struck in December. Allegations of accounting irregularities sent the company's stock into a tailspin, and the SEC opted
to launch a "nonpublic, informal inquiry" into Tyco's many acquisitions. To date, the jury is still out. But Tyco insiders, who have
recently invested more than $9 million in the stock, apparently think the verdict will be favorable. We're inclined to agree.
For months, Tyco has been a Wall Street darling. Major mutual fund houses such as Janus, Fidelity, and Putnam have packed
their portfolios with tens of millions of Tyco shares. Why? With 182,000 employees and operations in 80 countries, Tyco is a
cash-flow machine. Its four divisions -- telecommunication and electronics, healthcare and speciality products, fire and security
services, and flow-control products -- combined to post record revenue of $22 billion fiscal 1999 and income of more than $1 billion
(or 62 cents per share). Moreover, "We expect sales to exceed $26 billion and free cash flow to exceed $3 billion in fiscal 2000",
says CEO Dennis Koslowski. "And the free cash flow figure is after the reinvestment of $1.6 billion in capital expenditures to
strengthen our position in each of our four business areas."
Koslowski likes the numbers so much that he bought 100,000 Tyco shares at $41.75 per share at the end of January. That's $4
million of corporate conviction. Three other corporate bigwigs joined the party, reporting December and January purchases totaling
154,000 shares. Supporting the insiders' bullishness, the board of directors authorized a 200-million share buyback in November
and then OK'd another $2 billion for stock repurchases in January.
Despite the accounting quandry, 14 of 16 Wall Street analysts who follow Tyco rate it a "Strong Buy". One Merrill Lynch stock
jockey says, "Once the accounting uncertainty clears, the stock could easily pop to $55."
The analysts' consensus forecast calls for earnings of $2.14 per share in fiscal 2000, a 248% increase from fiscal 1999, and a
sizeable 21% jump to $2.59 in 2001.
Tyco trades at a modest 14 times next year's earnings forecast. We recommend it at its current price, which is well within the
insiders' buying range...
Insider Rating: 9" |
