Tyco Shares Upgraded to 'Hold'

SCHAFFHAUSEN, Switzerland (TheStreet) -- TheStreet.com's stock-rating model upgraded industrial conglomerate Tyco International(TYC Quote) to "hold."

The numbers: Tyco's fiscal third-quarter net income dropped 40% to $287 million, but earnings per share climbed 24% to 51 cents. Revenue fell 19% to $4.2 billion. Tyco's gross margin rose from 41% to 42%, but its operating margin fell from 12% to 9%. The company's quick ratio of 1 demonstrates adequate liquidity. Its debt-to-equity ratio of 0.3 is below the industry average, indicating restrained leverage. We give Tyco a financial strength score of 4.9 out of 10, less than the "buy"-list average of 7.

The stock: Tyco has advanced 64% this year, outpacing major U.S. indices. The stock has a price-to-earnings ratio of 15, a discount to the market and conglomerate peers. The shares offer a 2.3% dividend yield, less than the 2.8% average of S&P 500 companies. Tyco shares have risen 31% in the past year, but the stock has lost 5% annually, on average, during the past five years.

The outlook: Industrial conglomerates are attractive because their range of businesses provides diversification. However, in downturns they tend to suffer with the overall economy. General Electric's(GE Quote) third-quarter profit dropped 51% as its revenue declined 20%. Bellwether 3M(MMM Quote) is scheduled to report on Oct. 22 and Tyco will report on Nov. 10.

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