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How Some Analysts Have Started Hedging Their Bets on Tyco

Also, the revenge of the Lernahooligans, and look who's back -- Iomega.

Yep, yesterday was nasty -- unless, of course, you were short whatever went down. But this column looks micro, not macro, because in the end fundamentals


count. (That's important to remember in a market like this, which is as likely to boomerang as it is to continue bursting.)

With that in mind...

Tyco talk:

Whenever analysts veer, ever so slightly, in their support of a company under fire it's worthwhile to pay attention. The veering, in this case, has to do with



, which is under fire for alleged accounting irregularities.

The Tyco story, as we know it today, started in October, when its then-highflying stock took a hit after short-seller

David Tice's

Behind the Numbers

newsletter questioned acquisitive Tyco's merger accounting. Tyco responded by saying that it had done nothing wrong, that Tice's report was flawed, that all of its accounting was in accordance with generally accepted accounting principles and that its auditors would give it a clean bill of health. Similar comments were regurgitated by Wall Street.

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Then came a story in

The New York Times

by Floyd Norris that questioned how the companies in the process of being acquired by Tyco took large charges just prior to the acquisitions. Again, Tyco and its supporters said nothing was wrong.

Then, in early December, Tyco disclosed that the


had launched an informal "nonpublic" investigation into its merger accounting. Again, the company and its chorus of supporters said everything was fine and, finally, this would put the accounting issues to rest.

That was followed, in recent days, by analyst reports suggesting the company's first quarter ended Dec. 31 will exceed Wall Street estimates.

But (and here's the good part) reports by at least two analysts suggested there actually may be some kind of penalty. "We do not expect any meaningful restatements from the inquiry," wrote Harriet Baldwin of

Deutsche Banc Alex. Brown

. And James Samuels of

Banc of America Securities

told his clients that "ultimately, we do not believe Tyco will be meaningfully penalized."

Where did they come up with such similarly worded conclusions? A Tyco spokesman says that the company has said nothing. "We cannot speculate at all what the SEC will find or not find," the spokesman said.

Baldwin, meanwhile, told me the company didn't tell her she was completely crazy when she raised the issue. She figures that after several months of investigating, she "wouldn't be shocked if they had to change a couple of figures."

And Samuels says that he figures the SEC wouldn't want to be accused of "mild oversight" by coming away empty-handed after involving itself in such a high-profile case.

Whatever happens, the party line is changing (if ever so slightly) from nothing will happen to something is likely to happen. Sure, it's just a subtlety, but subtle changes are worth watching because a subtle change here, a subtle change there and pretty soon you can have something significant.

Lernahooligan alert:

Who woulda thunk? The market has its worst day in recent memory and what stock is up?

Lernout & Hauspie


, which has been rising for the past month, rose yesterday after an analyst from

Dresdner Kleinwort Benson

in London, who had not previously published on the stock, recommended Lernout with a price target of around 73. Among his reasons was Lernout's "impressive recent financial performance."

Are we talking the same Lernout? According to

First Call/Thomson Financial

, analysts have steadily chopped away at earnings estimates for the Belgian speech-recognition company -- for this year and last -- since last April. Now they're expecting the company to earn 67 cents per share in the just-completed year, down from $1.07 per share. And while the estimates have been cut by 37%, Lernout's stock has more than doubled. It rose 11% yesterday to close at a new 52-week high of 56 1/16.




Finally, it's baaccck!

Of all stocks,



was also among those bucking yesterday's trend. (Credit a positive TV mention from an analyst who apparently figured that, of the thousands of publicly traded stocks, Iomega is



Which reminds me (even though Iomega isn't on the list): What has been the performance of the

Greenberg Garbage Index of stocks that, in the most recent frenzy, was trying to regain its lost luster? Thought you'd never ask. Down 2.6% yesterday and flat since the index was launched Dec. 10.

This just in (surprise, surprise)

: Sputtering

Action Performance


withdrew the pending public offering of its

unit. The company offered no explanation.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.