Hilary Kramer's Daily Picks & Pans

Thursday, January 11, 2007 A couple of months ago, I wrote an entry for Tyco International Ltd, (NYSE:TYC) explaining that I didn't think the growth prospects were strong enough to take a big chance on the stock. Since then, Tyco has announced new quarterly results, and the growth -- although not breathtaking -- is certainly heading in the right direction.

Growth has been strongest in the electrical division and weakest in the health care division; results have been middling in the engineering and security divisions. The price has climbed a dollar or two since then, but that's the nature of a stock that is as volatile as Tyco.

There has, however, been a development that makes Tyco much more appealing in my eyes. The company has announced a restructuring plan, which involves breaking up into three separate companies: A health care company, an electrical company, and a security/engineering company. This could prove to be a great boon to shareholders clever enough to look past this company's history.

The board has yet to announce how this will play out in terms of current shareholders, but I do think it's going to make each division stronger. Tyco's current structure keeps the divisions separate in a way that keeps each from reaching its full potential, and it makes a lot of sense to break them out and allow them to be run by management with more focused goals.

Personally, I think the security/engineering division will be the one with the most potential for growth. The division has been doing a solid job, and the new management will have some good fundamentals to turn into a profit-making machine. The electrical division will also be appealing, but given that it has been the strongest performer of late, I think that this company is most likely to be overvalued in the beginning.

Given its weaker results, health care is most likely to be undervalued. However, this division has been making some progress of late and I believe the segment will be able to turn itself around once it's on its own.

Type of stock: A large, well-known and diversified company with a "past" that is about to undergo a serious restructuring.

Price target: At almost $30, TYC is close to its 52-week high, but I think the restructuring is going to send the stock up to nearly $35 by the middle of 2007. I'd consider buying now, and would definitely grab it if you see the price drop to around $27.

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This entry has 2 comments: (Add your own)

• #2 Comment from lusciouskristin 
  12/11/07 5:09 PM | Permalink

  Interesting.
  
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• #1 Comment from cowallst 
  1/22/07 12:10 PM | Permalink

  Can you please shed some light on TYC and their plan to ask shareholders to vote on a 1-For-4 Reverse Split.  How can this be good news for common share hoders?  That's bad news.
  
  Sara in Michigan