Tyco International Limited (TYC) Message Board

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Non-Tech : Tyco International Limited (TYC)

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To: JDN who wrote (3722)	11/16/2006 9:15:32 AM
From: deeno	Read Replies (1) of 3770

morgan comment excerpt Conclusion: TYC reported solid F4Q operating results with strength in the company’s industrial businesses (Fire & Security (F&S), and Engineered Prods) offsetting continued weakness at Healthcare. TYC Industrial looks increasingly attractive to us given its late-cycle end-market exposure, and management’s comments today on opportunities for margin expansion (particularly at F&S). On the other hand, margin contraction remains a key concern at TYC Healthcare, and a lack of visibility on a turnaround makes us more cautious on this part of the business. Perhaps most importantly, TYC appears to be making good progress towards executing on its planned March ‘07 breakup. We still see fair break-up value of ~$32-33 (~10% upside from here) but we continue to believe that this story could take time to play out. What Happened: Operating EPS of $0.51 came in modestly ahead of FC consensus of $0.49. Core organic sales growth of 7% was a modest positive surprise (vs. 5% trend line growth). Topline growth in Healthcare (2%) was a drag vs. relatively strong results in Electronics (11%) and Engineered Products (10%). Segment op. margins were down slightly (15.1% vs 15.2% LY). Margins in Healthcare were disappointing, down 270 bps y-o-y and 100 bps below our forecast. Implications: We are establishing our F1Q07E of $0.43 and adjusting our F07E to $2.00 from $2.05 to reflect a slower than expected recovery TYC’s Healthcare business. Our price target falls to $32 from $33 and assumes a forward P/E multiple of 16x our F07E, a discount to peers. Our price target is further supported by our conservative discounted cash flow (DCF) analysis. We reiterate our Overweight rating.

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