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Tyco (TYC) Scales New 52-Week High On Growth Impetus

By Zacks Investment ResearchStock MarketsMay 23, 2016 07:18AM ET
Tyco (TYC) Scales New 52-Week High On Growth Impetus
By Zacks Investment Research   |  May 23, 2016 07:18AM ET
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Shares of security and protection services provider Tyco International Ltd. (NYSE:TYC) scaled a 52-week high of $41.17 on May 20, before closing the trading session a notch lower at $41.13. Despite its strong price appreciation, this Zacks Rank #4 (Sell) stock has enough fundamental strength to further drive its price upward. The stock is currently trading at a forward P/E of 20.0x and has long-term earnings growth expectation of 13.0%.

Growth Drivers

Tyco has been actively repositioning its portfolio to build a right mix of businesses and maximize long-term value for its shareholders. The company’s acquisition pipeline also remains attractive and complements its existing businesses. During second-quarter fiscal 2016, Tyco closed the acquisition of consumer analytics firm ShopperTrak for $175 million. This strategic acquisition positions Tyco as a one-stop-solution provider of monitoring systems, data and analytics capabilities to retail clients.

During second-quarter fiscal 2016, Tyco also signed a merger deal with the global diversified technology company, Johnson Controls Inc. (NYSE:JCI) . Per the deal, Tyco will own 44% equity in the joint company. Post merger, the companies plan to strengthen their building products and technology, integrated solutions and energy storage portfolios. Tyco believes that this acquisition will help it to expand its global footprint in the building-technology market, enhance shareholder value and launch innovative solutions.

With an improved and enriched product portfolio, the transaction creates immediate opportunities for near-term growth through cross-selling, complementary channel networks, and expanded global reach for established businesses. The new company will enjoy synergistic benefits worth $500 million through mutual sharing of resources over the first three years after closing of the transaction. These annual cost synergies are expected to be achieved by increasing efficiencies, eliminating redundancies, integrating the global branch networks, and leveraging the combined scale of business platform. In addition, the transaction is expected to create at least $150 million in annual tax synergies.

We are bullish on the company’s fortunes based on the relative stability of the global security and fire markets, as well as high and predictable cash generation and limited balance sheet risk. The company returns significant cash to shareholders through share buybacks and dividends. Tyco also continues to invest in its businesses to strengthen long-term competitive capabilities for both products and services.

All these measures probably raised investor confidence and drove the shares to a 52-week high.

Other Stocks to Consider

A couple of other stocks that look promising in the industry include Alarm.Com Holdings, Inc. (NASDAQ:ALRM) and SuperCom Ltd. (NASDAQ:SPCB) , both carrying a Zacks Rank #2 (Buy).

JOHNSON CONTROL (JCI): Free Stock Analysis Report

TYCO INTL PLC (TYC): Free Stock Analysis Report

SUPERCOM LTD (SPCB): Free Stock Analysis Report

ALARM.COM HLDGS (ALRM): Free Stock Analysis Report

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Zacks Investment Research
Tyco (TYC) Scales New 52-Week High On Growth Impetus

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Tyco (TYC) Scales New 52-Week High On Growth Impetus

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