Tyco ( TYC) is back to starring in its own reality show.

A week after dazzling Wall Street with beautiful cash flow -- in one of the company's most colorful performances to date -- Tyco began to falter as the black-and-white truth set in. The company's second-quarter rebound, which looked so strong on the surface, could be fleeting. Meanwhile, the serious challenges upstaged by last week's good news will probably linger for a while.

The market, sobering up after last week's party, took a breather from its applause. After rallying for a 15% gain on the recent earnings report, the stock gave back nearly 4% to close Monday at $16.13. Although the stock bounced to $16.50 on Tuesday, at least one analyst -- one who has withheld rave reviews for Tyco for some time -- believes the stock could easily drift lower before investors have anything meaningful to clap about.

Prudential's Nicholas Heymann warns that Tyco must resolve serious issues -- with the Securities and Exchange Commission, the Internal Revenue Service and its own disgruntled shareholders -- before the company's stock can begin to recover. He's not even terribly uplifted by Tyco's second-quarter numbers, which tend to lose some of their luster under a strong spotlight.

Short-sellers pounced on the same numbers, hurt by a fresh wave of charges, and saw continued signs of weakness. They are convinced that Tyco faces long-term challenges that will stick around even after the company's massive accounting headaches finally subside.

"They've milked all of these businesses," one short-seller said. "They're just not competitive like they used to be."

After reviewing Tyco's latest earnings report, Heymann also declared that "operating challenges remain throughout the business portfolio." He questioned the sustainability of Tyco's bursting cash flow and, in the end, concluded that Tyco must shed entire business units and fatten its dividend before the stock can start to look attractive again.

Built to Last?

Tyco's second-quarter cash flow loomed large as the star of last week's news.

Coming in at $833 million -- even under a newly conservative definition -- cash flow jumped 47% from a year ago and nearly doubled some estimates of the crucial measure. To its credit, Tyco took on some big challenges to achieve that boost in cash. Namely, it cut inventories and receivables by $400 million and capital spending by $138 million during the quarter. But some critics view these as one-time improvements that simply distort the company's true cash-generation power.

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