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Non-Tech : Tyco International Limited (TYC)
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To: rich evans who wrote (3683)2/3/2005 11:15:53 AM
From: rich evans   of 3770
 
Valueline thinks TYCO fully valued. Valueline think Tyco doing well but think price reflects that and fully valued. Are they right?

After earnings report, tyco has been weak. The speech by Breen and slide show yesterday did not change this weakness.

Tyco seems to follow the market now as a large cap diversified company.

But Breen said many things which should IMO cause tycostock to go up.
Electronics revs will go up by 300 mill in Q2.
Operating margins should go up to around 15%.
Working capital will generate a positive 300 mill or so.
Tyco is ramping up all segments with double the R&D spending and increased capex spending.
This is especially true in healthcare and electronics. New ADT business model now ready and will start increase revs. Disconnect rate though will stay up for two more quarters while backlog of poor dealer contracts finish up. After these contracts finsihed, the bad debt reserves for ADT should go down.
Breen thinks Tyco organic growth will be 6% plus instead of old 4-6% range.
Based on slide show, segment operating margins in 2006 should be about 18% and about 17.5% operating margin after corporate expenses.
Tyco not worried about debt structure/amount anymore. That is why they are buying converts and not paying other debt. With converts they lower debt and diluted stock amount. No need to worry about debt and convert these bonds in January 2006 to help capitalization. Net Debt to Net Cap now down to 27% and net debt will be 10 bill at end of 2005.

My conclusion is that Tyco not overvalued and is still a buy. You get a very profitable diversified large cap, growing over 6%. with huge free cashflow with 4 great businesses which Breen says he likes very much and will now start growing faster especially ADT.
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