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Tyco Is Back, and Much Stronger

Don't forget, this was a company that only a few years prior was gutted and left for dead. The Street was rightfully skeptical of these changes. But with strong improvements in efficiency, which then expanded margins, investors had no choice but pay attention. Management's new strategy was working to perfection.

So as any smart team would do, they kept with the formula. In September 2012, Tyco spun-off its security business into a separately-traded company called ADT (ADT). You might have heard of them. Since that breakup, Tyco stock is up more than 40%. And with growth starting to creep back up in the corporate fire protection and flow control segments, I believe investors are now in line for further gains.

On Friday, the company will report fiscal 2014 first-quarter results. The Street will be looking for 45 cents in earnings per share on revenue of $2.63 billion, which would represent a little more than 1% year-over-year revenue growth. But don't let that feeble number fool you. Companies the size of Tyco, with such a global footprint, aren't expected to impress on the top line. The bottom line is where it matters.

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Given management's new stance on steady operating improvements and cost efficiency, investor sentiment will be decided on how the company performs on margin. What's more, they'll pay attention to what management says about its streamlining initiatives. Any progress on, say, things like centralizing operations should add to the company's long-term value.

And it will certainly be encouraging (to say the least) if management were to guide favorably and support what the Street believes to be an ongoing global recovery in commercial markets. All of that said, it's worth mentioning that the company reported a strong fourth quarter in November; both revenues and earnings increased year over year.

This isn't your little brother's Tyco. The current management team has taken great steps to remove the brand from its Enron/WorldCom grouping. Recent improvements notwithstanding, it's still going to take a bit longer before Tyco fully regains the Street's trust. By then it may be too late. With cash flow growth back at high single digits, I project Tyco's fair market value to approach $50 by the second half of the year, representing a 25% premium from current levels.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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