Tyco

(TYC)

could soon add another upbeat chapter to its amazing turnaround story.

The company -- once known for its stock-crushing scandals -- is expected to at least meet Wall Street profit estimates when it releases third-quarter results on Tuesday morning. It also has hinted that it may top its crucial cash flow target for the year.

By now, Tyco already has delighted investors with upside earnings surprises three quarters in a row. But this time around, the company also may need to lift its outlook in order to please those who've grown accustomed to good news.

That's because Tyco has kept its 2004 guidance range below the consensus estimate. It also has maintained its $4 billion annual free cash flow target.

"There is some risk of an expectations disappointment if Tyco does not nudge the year (Q4 by default) estimate higher," noted Citigroup Smith Barney analyst Jeffrey Sprague, who recommends buying Tyco's stock. "Fortunately, there appears to be a fair amount of anxiety going into the quarter, which should make it easier for the stock to trade higher in relief if results are solid and outlook statements are reassuring."

After tripling off its past lows to hit a two-year peak of $33.26 in late June, Tyco's stock has drifted lower ahead of this week's earnings report. However, it did recover some ground by climbing 1.3% to $31.40 on Monday afternoon.

Last week, analysts blamed recent weakness in the stock on overblown concerns about sales growth in Tyco's electronics division. The unit caters to technology and automotive customers that are vulnerable to a slowdown. But Stephen Tusa of J.P. Morgan was quick to downplay that particular threat.

"We are not denying that a slowing in the year-over-year growth rates is possible, and we would not be surprised if management called for a deceleration in FY4Q, from the torrid 10%-plus rates seen year to date," wrote Tusa, who recommends Tyco as a "focus list" stock. But "longer term, we continue to believe that Tyco Electronics is positioned well to benefit in a sustained industry recovery."

Even now, Tusa expects upside from the division. He raised his earnings forecast for the entire company last week "on the back of Electronics strength." Tusa predicts that Tyco will report third-quarter earnings of 42 cents a share -- a penny better than the consensus -- when the company releases its latest results on Tuesday. He believes that Tyco will then go on to beat current Wall Street expectations next year.

Sprague is similarly upbeat about the latest quarter in particular.

"Peer results this earnings season suggest Tyco could at least do the 41-cent consensus and possibly meet or exceed the top of its 39-42-cent guidance," he wrote.

John Inch of Merrill Lynch chimed in with a similar prediction. All three of the analysts have pointed to strong results from two Tyco Electronics competitors as reasons for their optimism.

Amphenol

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and

Molex

(MOLXA)

saw revenue jump by more than 20% in the latest quarter.

"Second-quarter results of Tyco's peers would appear to support our forecast improvement in base business, including Tyco Electronics," wrote Inch, who recommends buying Tyco's stock as well. "In our opinion, concerns surrounding a potential tech slowdown and rising raw material prices should not detract from Tyco's results this quarter or the next several quarters."

Still, Inch did acknowledge that high-priced materials -- which account for 40% of Tyco Electronics' costs -- could "exacerbate margin pressures." But he also went on to say that "the overall headwind could be smaller than investors expect."

Of course, investors will be eyeballing other Tyco divisions as well. Tyco Plastics also faces higher materials costs. But analysts believe the unit can offset some of these expenses through solid pricing and recent cost reductions.

They also look for continued progress from the company's Fire & Security division.

"Since 2002, cash generation from Fire & Security has improved dramatically," Sprague noted. And Tyco CEO Ed Breen has "suggested that upside to Tyco's current free cash flow guidance of $4 billion could come from Fire & Security."

Sprague predicts that Fire & Security will report its sixth consecutive quarter of revenue growth. But Inch believes that both Fire & Security and Plastics will still drag down the company's overall growth rate. Instead, he is looking for three other divisions -- Electronics, Engineered Products and Healthcare -- to drive Tyco's sales growth. All told, Inch expects Tyco to post total revenue growth of at least 9% and organic growth of 5% for the latest quarter.

Sprague is looking for an even stronger 7% jump in organic sales growth. He views the upcoming results as just the latest segment in a "strong multiyear story." And he took time ahead of Tuesday's report to reiterate his belief that Tyco "will remain a strong core holding for years to come."