Free of the taint of fraud, Tyco ( TYC) took flight Tuesday as investors bet on a brighter tomorrow. The Bermuda-based conglomerate ended a scandal-clad year on a high note Tuesday. Tyco's stock, pounded to single digits at its low point this summer, soared 13% Tuesday, following the release of a $50 million forensic audit of the company's accounting. But even after closing the books on that audit -- which accused only past management, led by former CEO Dennis Kozlowski, of outright fraud -- Tyco's new leaders still shoulder a heavy burden in turning the company around. The audit, conducted by high-profile attorney David Boies and a slew of assistants, exposed a company that relied heavily on aggressive accounting tricks to bolster its phenomenal growth. Tyco CEO Ed Breen has already sworn off the nonstop acquisitions tied to those artificial boosts. But some investors say that in choosing to correct only $380 million in accounting "errors" -- and keeping past accounting tricks in place -- the company has left Wall Street staring forward into a somewhat cloudy future. And as some observers have been pointing out , if the company can't keep growing steadily, Tyco stock will become far less palatable.
During a Tuesday morning conference call, analysts struggled for a clearer picture of Tyco's true earnings power -- both past and future. Jeff Sprague, an analyst at Salomon Smith Barney, expressed some concern about this year's "dramatic erosion in margins." And Leon Cooperman of Omega Advisors -- where Tyco is a major holding -- bluntly asked whether Tyco has "significant earnings power beyond the current level." Profits have plunged during the company's celebrated shift from aggressive to conservative practices. Tyco responded by reiterating its 2003 earnings guidance of $1.50 to $1.75 a share -- a possible drop from 2002's $1.75 -- and promising to retool Tyco into a more efficient company.