I took a small position in Tyco this morning. Here's a snip from my notes:
Company: TYC
Date: 4/30/02
2003's expected earnings: $2.89 (down from $3.85)
Estimated 7-10 EPS growth rate: 9 (vs. consensus of 15%)
P/E maximum if not 8.5: 8.5
Graham Fair Value: $52.57
Current Price: $18.50
$ difference: $34.07
Percent Growth to Fair Value: 184.16%
TPE: 6.3!
FPE: 5.3!
PEG: .30!
NPM: 14.2%!
ROE: 14.6% (erractic)
Short interest: 3.2 (was 1.7)
12 analysts; 7 have "strong buy" (down from 9) Consensus: 15% growth (down from 19%)
S&P FV: $42 Ave Risk "Hold" Outlook "5" (Highest!)
Quicken at 10% EPS growth(vs. consensus 15%) estimates:
Intrinsic Value/Shr: 27.95
Current Price: 18.45
By this calculation, TYC appears undervalued.
News:
Dow Jones 4/30: "One thing (Tyco) cleared up was the debt" issue, said money manager Darcy MacLaren of Safeco Asset Management, a Tyco shareholder. Tyco explained that it would use the proceeds from the CIT initial public offering to pay down debt and, only when the liquidity issue is resolved, would management consider buying back shares. "That should be a positive for the debt market," the money manager said. "Clearly," the money manager added, "they are working on multiple scenarious for how to handle debt repayment."
Tyco has indicated that it would slow the pace of acquisitions and concentrate on improving return on capital. Toward that end, the money manager noted that management said on Tuesday's call that it could sell some businesses that, though profitable, might not fit into the ROC model for the company. Such sales might dilute earnings in the near term but eventually would be additive to ROC, the money manager said. Tyco Chief Financial Officer Mark Swartz said buying back shares isn't even being discussed. "It's not prudent and not being considered, he said.
Moringstar 4/30:
When superstar managers like Legg Mason's Bill Miller or the folks from Clipper Fund talk about what they've been up to, we take notice. But we're especially intrigued when they're making a lot of the same moves at the same time.
That's exactly what has happened with Tyco. Miller and the Clipper managers both report picking up shares of the beleaguered conglomerate.
"Our contrary belief is that Tyco’s problems, while real, are far more modest and manageable than the stock market currently suggests," the Clipper managers said in a recent letter to shareholders. Bill Miller hasn't commented on his funds' Tyco holdings.
James Stewart 4/30: Tyco's situation is far more painful to me, since I have both recommended it and bought the stock. This is not a fashionable view, but I believe Chief Executive Dennis Kozlowski has been forthright with investors and that Tyco has survived intense press scrutiny, not to mention a prior Securities and Exchange Commission investigation, with only minor issues having been raised. But public perception has been terrible, which spilled over into the markets, dragging down its stock and its debt ratings. These are real problems, and they have lowered earnings projections and expectations. I think Tyco is right to reverse its breakup plan rather than sell into a hostile market at fire-sale prices. It's too bad, in fact, that the debt markets are forcing it to spin off CIT Financial. That may prove to be a very attractive public offering for investors, if not for Tyco. I'm holding my Tyco positions for now. For highly risk-tolerant investors — more risk-tolerant than I am — I'd be a buyer. |
