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UPDATE: Credit Suisse Upgrades Tyco, Expecting a Big Boost for Incremental Margins in the Installation and Service Businesses

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In a report published Monday, Credit Suisse analyst Julian Mitchell upgraded Tyco International (NYSE: TYC) from Neutral to Outperform, raising its price target from $36.00 to $46.00.

According to the report, TYC's top-line growth is set to accelerate from commercial construction tailwinds.Its earning should also benefit from an aggressive cost-cutting program as well as higher incremental margins from better-quality backlog in N. America.

“Stricter project selectivity standards should boost incremental margins in the installation and service businesses (75% of sales) above historic levels,” the report said. “This, coupled with a cost-cutting program which is running ahead of the initial plan (and will now be augmented by the Branch in a Box efforts), should drive EBIT growth rates to ~500bps above the sector average, at ~15% annually. Our forecasts embed ~$120mn cost savings over FY14-15, and ~25% blended incremental margins.”

Some highlights from the report included:

-”50% of TYC sales accrue from US non-residential construction.” -”We think FCF deployment could add $0.14 to our 2015 estimates, and levering the balance sheet to 1.5x (from ~1.0x today) could add an additional $0.20, implying potential earnings power of $2.80+.” -”TYC trades on a 2015 PE/G ratio of ~1.0X, which renders it one of the cheapest large-cap EE/MI stocks.”

TYC closed Friday at $40.44.

Latest Ratings for TYC

Apr 2015BarclaysMaintainsOverweight
Apr 2015RBC CapitalMaintainsOutperform
Mar 2015BarclaysUpgradesEqual-weightOverweight

View More Analyst Ratings for TYC
View the Latest Analyst Ratings

Posted-In: Credit Suisse Julian MitchellAnalyst Color Upgrades Analyst Ratings


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