Tyco International Ltd.TYC

Morningstar Rating

Stock Research and Analysis

by Anil Daka

Tyco International's leading position in fragmented, but growing, markets augurs well for investors. We think the firm's leadership in diverse markets, scalable cost structure, continuing growth potential, and recurring revenue stream provide a narrow moat around its business that will enable long-term value creation. Read more

Bulls Say

ADT enjoys a stupendous 30% operating margin in its North American business. As the security segment scales up internationally, operating margins will improve at overseas operations also.

In 2010, Tyco should recover healthy earnings in its electrical and metal products division, since higher-priced inventory is working its way through the sales channel.

S&P upgraded Tyco's debt from BBB to BBB+ to reflect Tyco's improved operating performance. Read more

Bears Say

ADT's United States revenues will fall in 2009 due to reduced sales of Sensormatic hardware used in electronic retail monitoring, as the retail industry shrinks this year.

The firm continues to attract adverse publicity as news about previous scandals refuses to desist.

Many think that Electrical and Metal Products would be a much better fit somewhere other than Tyco. We think the business will eventually be spun off in a tax-efficient manner, but the business wouldn't attract enough interest in its current state. Read more

Strategy

Tyco is pursuing growth opportunities through overseas expansion and new product introduction. The firm undertakes regular restructuring activities to better its cost structure. Careful acquisitions and selective divestitures also form an important component of Tyco's business strategy. Read more

Management

Ed Breen has been the chairman and CEO of Tyco since 2002. Though we prefer to see the chairman and CEO positions occupied by separate individuals, Tyco preserves a largely independent board with a lead director to balance corporate power. We think Breen did a terrific job of cleansing Tyco from the disastrous effects of past scandals. Read more

Profile

Tyco's business interests span five reporting segments: ADT Worldwide, Fire Protection Services, Flow Control, Electrical and Metal Products, and Safety Products. Bermuda-based Tyco International currently employs 113,000 people worldwide. Read more

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